Global oil prices climbed to $100 a barrel on July 23, marking a significant 6% increase for benchmark Brent crude. This surge followed an announcement from Iranian-supported Houthi forces regarding attacks on two oil tankers belonging to Saudi Arabia, a key U.S. ally. The strikes have intensified market anxieties that a vital Middle Eastern shipping corridor could face closure or severe restrictions.
The Houthis, a political-religious faction based in Yemen, declared a blockade of the Red Sea on July 20. The group maintains control over the Bab el-Mandeb Strait, which serves as one of the world's most critical maritime routes for oil transport. This strait, connected to the southern Red Sea, has functioned as an alternative to the Strait of Hormuz, though ongoing conflict between the U.S. and Iran has already constrained transit through the area.
Regarding the specific incidents, the Houthis claimed to have targeted two Saudi oil tankers: the Encelia and the Layla. While Saudi state media confirmed an attack and subsequent fire on the Encelia, the strike on the Layla remains unconfirmed at this time. Reports suggest that Iran has been pressuring the Houthis to shutter the Bab el-Mandeb Strait if the United States persists in attacking Iranian power infrastructure, a move that would simultaneously threaten two of the world's most important energy arteries.
A total closure of the Bab el-Mandeb Strait could potentially reduce global oil supplies by 7% by blocking the majority of Saudi oil exports from leaving the region, compounding the existing 10% reduction in flows caused by regional warfare. In response to these developments, President Donald Trump stated in a social post that the United States would inflict punishment on Iran for any future Houthi attacks.
The current economic impact is already visible at the pump. According to AAA, the average price for a gallon of regular unleaded gas is $4.09, reflecting a 37% increase from the pre-war cost of $2.98. Experts warn that the simultaneous disruption of several transportation routes, including energy, shipping and air cargo, is expected to increase global inflation and put key world economies at risk of stagflation. That's on top of existing political and tariff disputes, according to Oilprice.com.
Gasoline prices generally rise and fall with crude oil costs. Crude is the largest component of the retail price of gasoline, says the Energy Information Administration.
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