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Oil price soared as Saudi Arabia launched air strike against rebel militia in Yemen.
- Houthi rebels in Yemen are trying to dismantle the current government. Yemen itself is not a major oil producing nation, however air strikes by OPEC's largest oil producer always make situation tenser.
What is it about?
- The conflict is part of broader Shia and Sunni Muslim war. Houthi rebels are part of Shia Muslim group.
- Iran is country of Shia Muslims and Saudi Arabia is part of Sunni Muslim group. Rebels in Yemen are backed by Iran. So strikes by Saudi Arabia over rebels complicate the geo-politics in the region.
- Questions now might arise of Saudi Arabia's muted reaction over ISIS aggravation, which is a group of Sunni militants.
What now for oil?
- Situation might keep the price elevated over the coming days if not weeks. Brent is trading around $59.5/barrel.
- However narrowing of spreads between WTI and Brent puts doubt over actual possible reversal of Crude price. Brent is the benchmark used by OPEC in pricing their oil. Spread has squeezed below $7/barrel, however currently trading at $8/barrel.
What to watch for?
- Reactions of Iran and impact on two important oil route in the region, Bab-El -Man dab and Straits of Hormuz. These routes carry 20-25% of the world crude.
- Staunch reaction from Iran might complicate the current ongoing nuclear negotiation and world powers. Any abrupt failure of talks is positive for prices.
