Oil prices have climbed above $108 a barrel after a series of drone attacks forced Saudi Arabia to close its east-west crude pipeline.
Brent crude, the international benchmark for oil prices, surged to as much as $108.03 a barrel on Monday – a 3.25% increase on the day.
The spike came after Yemen’s Iran-aligned Houthi forces launched several attacks against Saudi Arabia and captured the strategic island of Perim in the Bab al-Mandab strait on Sunday, expanding their control of the waterway.
Market concerns were also fuelled by the Gulf states postponing a meeting with Tehran to discuss creating a temporary shipping lane through the strait of Hormuz, a vital channel through which a fifth of the world’s oil and gas supply normally passes.
Traders in the kingdom have warned it will run out of oil stocks for export if it does not reopen the east-west pipeline within days.
Gas prices also climbed higher on Monday, with the UK benchmark rising by 5% to 208.73p a therm – its highest level since December 2022.
Energy prices have surged this year, as the US-Israel war with Iran has disrupted oil and gas supply across the Middle East. The oil price peaked at $126 in April but later fell back over the summer amid hopes of a lasting ceasefire.
The price then began to climb again after the memorandum of understanding between the US and Iran fell apart. After a fresh stepping up of hostilities the benchmark again rose above the $100 a barrel threshold last week for the first time since July.
Chris Beauchamp, of the broker IG, said that a “move back to the spring highs” looked increasingly likely.
“Oil markets are being subjected to their worst fears all at once – attacks on energy infrastructure, the closure of Hormuz and a breakdown in attempts to restart negotiations,” he said.
“The risk of further disruption is also spreading beyond the Gulf, with the threat of renewed Houthi attacks on shipping adding another layer of uncertainty around key energy and trade routes.
“The major surprise is how calm markets remain in the face of all this, but if prices breach the March highs, things could get ugly very quickly.”
Oil output from Saudi Arabia had been under pressure before the attacks on its major pipeline. Riyadh told the Opec oil cartel recently that its crude production in August was at its lowest level since 1990, according to Bloomberg.
The spike in energy prices has triggered higher inflation across large economies around the world. Central bankers in the US, Japan and the UK must contend with the renewed rise in the cost of energy and accelerating price rises as they prepare to set interest rates this week.