Impact of conflict in Yemen

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   Oil market has significant feature – it can be immediately influenced by current political situation. Let’s focus on recent incidents in Yemen – oil prices spiked in early European trading on Thursday after news that Saudi Arabia had bombed targets in Yemen. The price of West Texas intermediate crude, the main American benchmark, rose about 4.5 percent in morning trading, while Brent crude, the widely used international reference, rose about 4 percent. In early afternoon trading in New York, the West Texas benchmark was up 4.5 percent on the day, to $51.40, and Brent crude was up 4.9 percent, to $59.27.

   Yemen, with production of an 130 000 barrels a day, is only 39th producer in the world. The main issue is Yemen’s location on the Bab el-Mandeb Strait, a narrow choke point between Yemen and Africa through which tankers and other ships pass as they head around the Arabian Peninsula and up the Red Sea toward the Suez Canal. Bab el-Mandeb is the fourth biggest shipping chokepoint in the world by volume. 3.8 million barrels of oil and petrol passes by it per day from Europe to north Africa. Moreover, Yemen shares a long border with Saudi Arabia, the world’s  biggest exporter of crude oil. So, as you can see, it is small but laid in strategic area country.

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   Fighting in Yemen is mainly between the forces loyal to Sunni president Abd Rabbuh Mansur Hadi and the group of rebels from the north known as Houthis – military Shia fighters. Another entirely separated militant group operating in Yemen are Sunni Muslim extremists who pledge allegiance to al-Qaeda. They are fighting against the government and the Houthi rebels and they have taken control of the large parts of the country.

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   Will the fights disrupt the flow? If so, ships would take a longer journey around the Africa. Somalian pirates have been operating actually in these waters for many years. Oil tankers in that region have a lot of weapons and are armed against those pirates so it might not be as big of an issue. It would add though about some dollars of additional transport cost and an extra ten days to get that oil to the north.

   Thousands of barrels of oil from Yemen aren’t enough to disrupt the market but millions from Saudi Arabia would be a different matter. Those who control Yemen could control the movement of oil around the globe. It’s a complicated fight that the rest of the world and the oil markets are watching closely.

Sources: www.bloomberg.com www.nytimes.com

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