Global oil prices spiked dramatically overnight, with US WTI crude futures closing more than 8% higher and Brent crude futures gaining nearly 8%. This sharp rally comes amid rapidly escalating geopolitical tensions in the Red Sea region.
According to reports citing Yemeni government military officials, Houthi forces seized the strategically vital port city of Al-Mukha in Taiz Governorate after hours of intense fighting. Located roughly 80 kilometers from the Bab el-Mandeb Strait on the Red Sea coast, Al-Mukha serves as a crucial supply port for Yemeni government forces and their allies. In a separate development, Yemeni officials confirmed that Houthi forces have deployed troops on the Hanish Islands after government naval units withdrew from this strategic archipelago north of the Bab el-Mandeb, which holds significant value for monitoring and safeguarding international shipping lanes.
A Houthi spokesman stated that the group's current military operations are "defensive" in nature with specific targets, adding that these actions would conclude if attacks against them cease and blockades are lifted. The spokesman insisted that navigation through the Red Sea and Bab el-Mandeb remains "safe and normal" and that their operations "do not threaten international shipping."
The Bab el-Mandeb Strait, connecting the Red Sea to the Gulf of Aden, serves as a critical maritime chokepoint through which approximately 12% of global oil transportation passed before the US-Iran conflict erupted. Following American and Israeli military action against Iran and Tehran's retaliatory threat to close the Strait of Hormuz, this waterway has become an essential alternative route for Saudi crude exports. Analysts warn that any Houthi blockade of the Bab el-Mandeb could severely disrupt global energy supplies.
Adding to the volatility, a statement from Yemen's Houthi forces reported that Saudi warplanes launched 64 airstrikes across the Taiz, Hodeidah, Marib, and Al-Jawf governorates over the past 24 hours. The statement said Saudi F-15 and Typhoon fighter jets conducted these raids from King Fahd Air Base in Taif and King Khalid Air Base in Khamis Mushait.
Meanwhile, broader financial markets experienced significant selling pressure. The US Labor Department reported that the Producer Price Index (PPI) rose 0.4% month-over-month in August, marking the largest increase since May, while the annual figure came in at 5.4%. Core PPI, excluding food and energy costs, climbed 0.2% monthly and 4.6% annually. Following the data release, traders intensified their bets on Federal Reserve rate hikes, with market pricing now showing a 70% probability of a move next week and a fully priced-in hike by October at the latest.
The Treasury selloff added further strain to equity markets. The 30-year US Treasury yield surged to 5.347%, its highest level since June 2007, while the 10-year yield reached 4.926%, a high not seen since November 2023. All three major US stock indices closed lower, with the Dow falling 0.6%, the Nasdaq dropping 0.65%, and the S&P 500 declining 0.58%. Semiconductor and memory stocks led losses, with SK Hynix falling over 5%, Micron Technology down nearly 5%, Western Digital and SanDisk each dropping more than 4%, and Seagate Technology losing over 2%. Copper-related equities also slumped, with Freeport-McMoRan down more than 6% and Southern Copper falling over 7%. The Philadelphia Semiconductor Index declined more than 2%, while spot copper, silver, and gold prices posted sharp losses.
Analysts attribute the oil rally to the market steadily pricing in geopolitical risk premiums. Sui Xiaoying, chief researcher and head of the energy team at Guotou Futures, told reporters that while the US-Iran conflict escalation served as the immediate catalyst, the underlying support comes from sustained damage to energy supply chains creating global product market tightness, combined with currently low oil product inventories that amplify price elasticity. Julian Pineda, senior analyst at GAIN Capital, noted that the OVX volatility index remains near recent highs, signaling an increased likelihood of sharp market swings.
Sui highlighted that shipping risks through the Strait of Hormuz remain elevated amid the resurgent US-Iran conflict, with repeated attacks on tankers and oil facilities. Additionally, Houthi forces have intensified strikes against Saudi targets in the Red Sea since July, causing Saudi crude exports via the Bab el-Mandeb to decline significantly with some vessels rerouting northward through the Suez Canal. Gulf region crude exports currently stand at approximately 70% of pre-war levels, representing a decline of roughly 5 million barrels per day.
Hou Yanjun, general manager of Shenzhen Houshi Tiancheng Investment Management, pointed out that Iran's August crude and condensate loadings fell dramatically to just 220,000-255,000 barrels per day, down from about 740,000 barrels per day in July and a sharp drop from the roughly 2 million barrels per day seen in March, following the US resumption of sanctions and economic pressure. Looking ahead, Sui believes the US-Iran dispute will not be resolved quickly, supply chain disruptions show no signs of recovery, and with persistent supply gaps, oil prices are likely to trend higher. Pineda cautioned that without reliable negotiation outcomes in the Middle East and continued poor supply conditions, buying pressure on WTI futures could persist in the coming weeks.
Hou suggested that given the US may not intend to end the conflict soon, and depending on whether the confrontation escalates to threaten oil production facilities, international oil prices could potentially test the $120 per barrel level. Analysts also warned that oil prices remain highly sensitive to geopolitical headlines, market volatility has visibly increased, and investors should closely monitor developments in US-Iran negotiations.