Oil Hits 7-Year High of $88 as UAE Attack Stokes Tension

By Adedapo Adesanya

Oil hit a 7-year high on Tuesday with Brent crude jumping to $88 per barrel as supply disruptions stoked tensions after Iran-aligned Houthis attacked targets in the United Arab Emirates (UAE) with drones.

The price of the international crude benchmark went up by $2.17 or 2.51 per cent to $88.65 per barrel while the United States crude benchmark, West Texas Intermediate (WTI), gained $1.61 or 1.92 per cent to sell for $85.43 per barrel.

Houthi rebels attacked the UAE on Monday, killing several people as drones blew up fuel tanker trucks near storage facilities owned by the Abu Dhabi National Oil Company (ADNOC).

Apart from the numerous signs of tightness in the physical crude market, oil futures reflected on Tuesday the growing risk premium after the attack on the UAE in the most important oil-producing and exporting region in the world.

The UAE is the world’s seventh-biggest oil producer and the third-largest in the Organisation of the Petroleum Exporting Countries (OPEC) after Saudi Arabia and Iraq, pumping just over 4 million barrels per day.

Attacks by Houthi rebels with whom the UAE has been at war in Yemen since a Saudi-led coalition began bombing the country in 2015 have been common in Saudi Arabia, but this is the most significant strike by Houthis in the UAE and is the first in the country since 2018.

The UAE largely withdrew from the Yemen conflict in 2019 but continues to support forces in the country fighting the Houthis, who receive financial and military backing from Iran.

The rising threat of a further deterioration in the Middle East’s security climate has provided further support to oil prices as the rebels warned that there will be further attacks.

This growing geopolitical risk comes at a time when there is already plenty of concern in the market over the potential impact of an escalation in tensions between Russia and Ukraine.

The bullishness is expected to continue as the market has brushed off any adverse effects of the Omicron wave just as demand has remained strong.

Analysts point out that traders will be eyeing the $100 per barrel mark for crude oil for the first time since 2014, with the perceived diminishing threat posed by Omicron to the global economy and supply constraints and disruption driving the black gold higher.