Oil Surges Past $116 as Houthis Enter Iran War, Trump Eyes Kharg Island

Oil prices rallied and stocks tumbled again on Monday as the Middle East crisis escalated with the entry of Houthi rebels into the Iran war, and investors grew increasingly concerned that the United States would send in ground troops.

The Escalation

As the conflict moved into its fifth week, Yemen’s Houthi rebels on Saturday said they had fired “a barrage of cruise missiles and drones” at strategic sites in Israel.

The strikes raised concern about the war spreading to the Red Sea , with Saudi Arabia rerouting much of its oil exports there to avoid the Strait of Hormuz , through which 20 percent of crude and gas passes and has been effectively closed by Tehran.

Oil Prices Surge

Both main contracts jumped more than three percent at one point:

• Brent North Sea Crude: Up 3.2% to $116.15 a barrel

• West Texas Intermediate: Up 3.0% to $102.61 a barrel

Trump’s Comments

Adding to the dour mood were President Donald Trump’s remarks to the Financial Times that he wanted to “take the oil in Iran” and could take the country’s Kharg Island “very easily.”

Kharg Island, located off the west coast of Iran, is a vital oil terminal and is being eyed by the Pentagon for ground operations, though the United States insisted it would stop short of a full-scale invasion.

“Maybe we take Kharg Island, maybe we don’t. We have a lot of options. It would also mean we had to be there for a while.”

Market Reaction

The surge in oil prices and the prospect of an extended conflict put more pressure on equities amid fears about a surge in inflation.

Tokyo: Down 4.6%
Seoul: Down more than 3%
Hong Kong: Down 1.9%
Shanghai: Down 0.7%

The New Risk

Chris Weston of Pepperstone noted: “The market is now reacting to higher crude pricing and towards the fallout in the economic consequences.”

“Higher short-term inflation expectations, volatility in the interest rate markets, and growing concerns around supply shortages/inventory and the subsequent impact on economic data and corporate earnings is now front and centre.”

He highlighted a new key risk: the Houthi’s ability to disrupt shipping through the Bab al-Mandab Strait , which accounts for roughly 12 percent of global trade.

“Any meaningful disruption, married with a sharp rise in insurance costs, could drive another leg higher in crude and further pressure risk assets.”

The Diplomatic Front

While Pakistan said Sunday it was ready to broker and host “meaningful talks” between Washington and Tehran, Iran’s parliament speaker said the United States was “secretly planning a ground attack.”

The selling came after a relatively calm period last week when Trump delayed until next month a threatened attack on Iran’s energy infrastructure, citing progress in talks.

The Bottom Line

Oil is above $116. Stocks are tumbling. Houthi rebels are in the fight. Trump is eyeing Kharg Island.

The war is widening. The economic fallout is growing. And markets are bracing for what comes next.

{Source: IOL}

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