Brent crude is rapidly approaching the $100 per barrel mark, with the sharp deterioration in the Middle East pushing global energy markets to their most dangerous point in decades.
On Thursday, Brent crude futures surged nearly 5% in a single session, hitting an intraday high of $98.70 per barrel. This followed the Houthi group's entry into the conflict, threatening a blockade of the Bab el-Mandeb strait, a critical maritime chokepoint, while the Strait of Hormuz remains partially disrupted. The simultaneous pressure on these two key waterways has driven a sharp increase in market risk premiums.
Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, warned that "the war is entering a dangerous phase, with risks to the Red Sea and critical infrastructure," and pointed to the potential for oil prices to surpass the 2022 Russia-Ukraine conflict high of $128 per barrel and even challenge the 2008 all-time peak of $146.
This surge in oil prices comes at a time when global petroleum buffer stocks have been significantly depleted, with Cushing crude inventories reportedly near "tank bottom" levels. The market has little capacity to absorb a sustained supply disruption. Meanwhile, the US national average price for regular gasoline surpassed $4 per gallon on Monday, adding to political pressure on the Trump administration to pursue diplomatic mediation in the Gulf.
Pressure on twin chokepoints escalates supply risks
The immediate trigger for the sharp rise in oil prices was renewed Houthi action against Red Sea shipping.
According to Xinhua News Agency, Yemen's Houthi group stated early Wednesday that it had attacked two Saudi oil tankers in the Red Sea, claiming the vessels violated a recently announced maritime blockade. Following the news, Brent crude jumped to above $95 in after-hours trading.
By Thursday, as war risk premiums continued to accumulate, oil prices further rose to $98.70.
Currently, tankers are again rerouting away from the southern Red Sea, reversing a brief resumption of shipping traffic that had followed a lull in Houthi attacks in 2023. Meanwhile, the partial blockade of the Strait of Hormuz remains unresolved, plunging two of the world's most vital energy transport routes into chaos and sharply tightening supply expectations.
Saudi Arabia has issued a strong signal, indicating it will respond forcefully to any attacks on its tankers or onshore energy facilities, further escalating the risk of a wider conflict.
RBC: Oil could break 2008 record in worst-case scenario
Helima Croft struck an unusually strong tone in a note to clients on Thursday. She noted that while Brent crude has risen over 30% since July 1, the current price remains a "lagging indicator of the extreme pressure in the region."
Croft stated that given the ongoing dangerous escalation, oil prices have the potential to break through the $128 per barrel high seen during the 2022 Russia-Ukraine conflict, and in the worst-case scenario of a full-scale regional war, could even challenge the 2008 all-time high of $146.
She specifically highlighted the far-reaching impact of the Houthi intervention, suggesting it could expand supply losses from the war by reducing the effectiveness of alternative east-west pipeline routes.
Saudi Arabia has previously relied on its East-West pipeline, with a capacity of 7 million barrels per day, to bypass the Strait of Hormuz and transport crude to Red Sea export terminals. However, if the Bab el-Mandeb strait also becomes impassable, this alternative route would be rendered useless. Tankers bound for Asia would be forced to navigate around the Cape of Good Hope, significantly increasing shipping costs and delaying delivery times by weeks, further tightening physical market supplies.
Goldman Sachs also flags $120 as a Q4 scenario
RBC is not the only institution issuing warnings.
Reports indicate that Goldman Sachs commodity expert Daan Struyven warned on Monday that if the disruption to shipping through the Strait of Hormuz persists, Brent crude futures could surge to above $120 per barrel in the fourth quarter. He noted that this is not his base-case scenario.
The statements from both institutions collectively outline the current market risk landscape: the baseline scenario is already severe, while tail risks are even more extreme.
Depleted inventories and political pressure narrow Trump's diplomatic room
Adding to market concerns, this supply shock is occurring when the global oil safety cushion has been significantly eroded. Cushing crude inventories are reportedly near "tank bottom," leaving the market with virtually no spare capacity to absorb a prolonged supply outage.
On the demand side, the US national average price for regular gasoline broke above $4 per gallon on Monday. The rise in this politically sensitive indicator is increasing internal pressure on the Trump administration. Analysts believe that once US forces have sufficiently degraded the missile and drone capabilities Iran uses to threaten commercial shipping, oil price pressures will push Washington to seek a diplomatic resolution.
From a supply perspective, the magnitude of the risk is substantial. The Strait of Hormuz handles approximately one-fifth of the world's oil supply, while the Bab el-Mandeb strait normally sees the passage of 8 to 9 million barrels of oil per day. If both chokepoints become simultaneously paralyzed, the global energy market would face an unprecedented supply pressure test.
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