Since October 7th 2023, the Iranian-backed Houthi rebels of Yemen have launched dozens of attacks on merchant and American naval vessels in what they claim to be support for Hamas in the Israel-Hamas war.  The continued attacks, and further escalation, have raised concerns about the long term impacts on the oil market, as well as the threat of the continuation of expanded regional conflict.  On January 11th, the Iranian navy seized the oil tanker St. Nikolas in the Gulf of Oman while en route to Turkey in retaliation for last year’s seizure of the ship by the United States.  Additionally, on January 15th, Houthi rebels struck the American owned container vessel, the Gibraltar Eagle, which sustained significant damage – no lives were lost.  Finally, on January 16th, the Iranian Revolutionary Guard Corps launched ballistic missiles at targets in northern Iraq and Syria.

Given that the Middle East accounts for approximately 31.3 percent of global oil production, continued escalation threatens to not only further destabilize the region and increase the likelihood of wider regional conflict, but also stands to have a negative long term impact on oil prices.  Although the immediate effects of the Houthi attacks have not made a significant impact on the price of oil, the longer trade is disrupted and conflict is allowed to persist, the higher the chance will be that oil and energy prices increase.

The Dangers of an Emboldened Iran

The St. Nikolas is owned and operated by the Greek ship owner Empire Navigation Inc., which is registered in the Marshall Islands, and was recently renamed from Suez Rajan.  The ship was renamed due to last year’s seizure of the ship by the United States after it was caught violating the International Emergency Economic Powers Act (IEEPA) and global sanctions against Iran in an attempt to sell and transport 980,000 barrels of Iranian crude oil on behalf of the Islamic Revolutionary Guard Corps (IRGC).

In United States v. Empire Navigation Inc. and Suez Rajan Limited, Suez Rajan Limited plead guilty to the charges and were sentenced to 3 years corporate probation and a fine of $2.5 million which Empire Navigation Inc. agreed to joint liability for.  The St. Nikolas, which has a cargo of approximately 1 million barrels of Iraqi crude oil, has now been located east of Iran’s Qeshm Island where Iran plans to hold the ship, and its crew, until they are repaid $75 million for the confiscation of their oil last year – they declared that they would retaliate after the Suez Rajan had its cargo taken last year.

Source: AP News

Four days after the Iranian seizure of the St. Nikolas, the Iranian backed Houthis in Yemen launched a ballistic missile at the Gibraltar Eagle, an American owned bulk carrier that was in transit in the southern Red Sea.  Although the ship reportedly did not sustain significant damage, and no lives were lost, the attack demonstrates the deep resolve of the Houthis, who are funded and supplied by Iran, to continue their efforts to disrupt trade in the region in opposition to the Israel-Hamas war.

Taking further advantage of the regional chaos, on January 16th, Iran launched missile attacks in northern Iraq and Syria at what they claimed to be an Israeli intelligence base in northern Iraq and at purported “anti-Iranian” groups in Syria, and the Iranian Revolutionary Guard Corps took credit – this demonstrates an escalation as the dozens of attacks carried out in the region since October, had been led and claimed by Iranian backed militias but not the Iranian’s directly.

Iran and the Houthis’ Impact on the Energy Market

As a result of the continued turmoil in the Red Sea, oil prices have risen over the first two weeks of January with Brent crude reaching a high of $80.53 on January 12th and currently sitting at $78.49 as of January 19th.  With the risk of shipping through the Red Sea increasing, Shell, a major British oil company, announced on January 16th, that they will be suspending their shipments through the Red Sea indefinitely.  Shell joins BP, Equinor, and QatarEnergy, who recently announced that they would cease all shipments of LNG through the Red Sea, all of whom cite the continued actions of the Houthis as their reasoning to find alternative routes to market.  Importantly, QatarEnergy production of LNG will not stop, they will simply be using the route around the Cape of Good Hope to deliver to the European markets – this will add 9 additional days to the already 18 day long voyage from Qatar. However, one thing that has surprised many market observers has been the fact that the rise in the price of oil has not been as immediate or volatile as it has been in the past during conflicts in the Middle East.

Source: EIA

The above chart indicates the 14 largest oil price shocks between 1970 and 2020, the majority of which were caused by global events in the Middle East.  What sets the lack of immediate price shock apart from the historical record has been the extraordinary increase in American domestic production of oil.  In 2023, the United States produced more oil than any other country in the world rising to a record 13.1 million barrels per day (bpd) in August of 2023 alone.  With such impressive production, EIA predicts a continued steady growth in oil production with a possible decrease in demand moving through 2024 and 2025, as shown in the image below.

Source: EIA

Experts indicate that innovation in drilling and the shale revolution have directly contributed to the record production of oil, as well as stand as a strong reason as to why oil prices have not been as heavily impacted by the militant actions of the Houthis and the Iranians.  Advancement in technology in hydraulic fracturing and horizontal drilling, are what have enabled the shale revolution, which allows for the extraction of oil from previously impermeable oil formations and now accounts for 36 percent of all crude oil produced in the United States.  The incredible expansion of domestic production of oil in the United States will continue to play a vital role in keeping the global price of oil steady with heightened tensions in the Middle East.


Since their first attacks in November, 2023, the Houthis have not shown any sign of relenting, even with the recent retaliation by American and British forces.  With the recent seizure of the St. Nikolas by the Iranian navy, tensions in the Middle East show dangerous signs of further escalation and expanded regional instability.  As a significant amount of global oil production takes place throughout the Middle East, as demonstrated by the recent increase in the price of a barrel of oil, until regional stability returns, global energy prices remain at risk of increasing further, which continues to underscore the importance of the rise of U.S. oil production in recent years.

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