Brent crude spikes to $100 as Middle East tensions roil markets

Brent crude breached $100 a barrel Thursday for the first time since May as Houthi attacks on Saudi tankers in the Red Sea opened a second front in Middle East supply disruptions, sending European stocks to their biggest losses in a fortnight.

"The workaround via the Red Sea is now facing headwinds as the blockade and the threat of attacks on ships will make passage less viable in the near-term," said Maya Senussi, senior economist at Oxford Economics.

Brent rose 13.7% this week to trade at $100.62 a barrel, while West Texas Intermediate climbed above $92. The rally pushed European equities lower and drove German 10-year bond yields to their highest level in 15 years, reflecting concern that sustained energy costs will keep inflation elevated. The Caspian Pipeline Consortium halted intake from Kazakhstan after drone attacks near its Black Sea terminal, compounding supply stress.

The stakes are higher than during previous oil price spikes because the conflict shows no sign of abating and global inventories have already been drawn down. The International Energy Agency warned world production is running about 9.4 million barrels a day below pre-war levels. If both the Red Sea and the Strait of Hormuz were effectively closed, Oxford Economics estimates Brent could surpass $160 a barrel.

Houthi forces struck two Saudi tankers with missiles and drones Wednesday, the first direct tanker strikes in the Red Sea during the current conflict, and declared a maritime embargo on Saudi-linked shipping. Three crude carriers bound for Asia reversed course. The Bab el-Mandeb strait handled about 5.4 million barrels of oil a day in the first quarter, according to the US Energy Information Administration, and a blockade would force vessels around southern Africa, lifting freight and insurance costs.

The Red Sea had become Saudi Arabia's alternative export route after the Strait of Hormuz was effectively closed earlier in the conflict. The kingdom stepped up shipments via pipeline to the Red Sea port of Yanbu, allowing it to export about three-quarters of its pre-war level. That workaround is now under threat.

German Yields Hit 15-Year High as Bond Selloff Deepens

The oil surge reverberated through fixed-income markets, with German bund yields spiking to levels not seen since 2011. The move reflects a repricing of inflation expectations as higher energy costs feed through to consumer prices. European stocks suffered their biggest losses in a fortnight, with the Stoxx 600 declining as investors rotated out of risk assets.

The last time Brent traded above $100 was in March during the initial phase of the US-Israeli war on Iran, and before that when Russia invaded Ukraine in 2022. Each successive spike has occurred with lower inventory buffers. "Much of the world's spare production capacity has already been used, while strategic and commercial oil inventories are lower than when the war began, leaving the market with fewer buffers against a prolonged supply disruption," said Janiv Shah, vice president at Rystad Energy.

What Comes Next

President Donald Trump has threatened to expand military action against Iran if Tehran attacks ships in the Strait of Hormuz, while Iran has threatened retaliation against US-linked energy assets. Both sides have played down ceasefire prospects. Some analysts say that if Red Sea shipping diminishes significantly, oil prices could reach $120 a barrel. The lone bearish signal came from the EIA, which reported a surprise 1.4 million barrel build in US crude stocks.

This article is for informational purposes only and does not constitute investment advice.