Oil prices extended their climb this week after Iran-aligned Houthi forces seized a strategic island commanding the Red Sea's southern entrance, compounding a drone strike that forced Saudi Arabia to shut a pipeline built specifically to bypass the Strait of Hormuz.
Houthi fighters took control of Perim Island, the outcrop that splits the Bab el-Mandeb Strait into its two navigable channels, days after capturing the Yemeni port city of Mocha and the Hanish islands, according to Yemeni government sources cited by CBS News. The advance gives the group effective oversight of one of the world's busiest oil-shipping corridors.
The seizure came within 48 hours of a separate attack that forced Saudi Arabia to shut its East-West pipeline, the roughly 7-million-barrel-a-day conduit that lets the kingdom route crude to the Red Sea port of Yanbu without transiting the Strait of Hormuz. CNBC reported that satellite imagery verified by Reuters showed smoke along the pipeline route after the strike, which Saudi and Iraqi officials linked to Iran-backed militias operating from Iraqi territory.
Brent crude traded near $107 a barrel Tuesday, up roughly 19% over the past month and about 60% higher than a year ago, according to Trading Economics data. West Texas Intermediate settled Monday at $103.68, up 2.3% on the session, according to Yahoo Finance figures.
Supply increases have not offset the risk premium
The gains have come despite OPEC+'s decision to keep adding barrels to the market. The group approved its fifth consecutive monthly increase of 188,000 barrels a day, continuing to unwind the voluntary output cuts it imposed in 2023. Forecasters remain split on where prices go from here: the International Energy Agency has cut its global demand outlook, projecting a 2.5-million-barrel-a-day contraction in 2026, while the U.S. Energy Information Administration has raised its 2027 domestic production forecast to 14.3 million barrels a day.
For now, traders are pricing the geopolitical risk more heavily than the supply math. Two chokepoints tied to the same barrel — the Bab el-Mandeb shipping lane and the Hormuz-bypass pipeline — are simultaneously contested for the first time in the conflict, and the higher energy costs are feeding directly into the inflation data the Federal Reserve is weighing at its policy meeting this week.
Shipping insurers have begun repricing Red Sea transits, and traders said further Houthi advances toward the strait's shipping lanes could push more vessels onto the longer route around the Cape of Good Hope, adding weeks to voyage times and tightening tanker availability further.
A separate account of the Houthi advance along Yemen's Red Sea coast — tracking the group's capture of Mocha, the Hanish islands and the approach to the strait — offers additional detail on how the territorial gains unfolded in the days before this week's price surge.
