Fuel to the Fire? Oil Prices Highest in Seven Years Amidst Geopolitical Tensions

Due to low supply and escalating geopolitical tensions, oil prices have reached their highest since October 2014. Soaring oil prices have sent economic reverberations throughout the global economy—and thrust it into limbo.

Geopolitical tensions have worsened in the wake of the oil price increases. In January 2022, Yemen’s Houthi group attacked the U.A.E. Abu Dhabi National Oil Fuel Depot with drone and missile strikes that exploded fuel trucks and killed three people. The Houthis also threatened to target more facilities. Such attacks proved in retaliation for the September 2021 attacks in which Saudi-led forces carried out airstrikes on Yemen’s capital Sanaa, causing twenty deaths. 

Such conflicts come as but the latest in a prolonged history of geopolitical tensions between Yemen and the U.A.E. The civil war in Yemen began in 2014 when Houthis took control of Sanaa, demanding lower fuel prices and a new government. During such conflicts, the Houthis, a rebrand of the formerly Ansar Allah (“partisans of God”), emerged as a purportedly Iran-backed Shiite rebel group with a history of conflicts against Yemen’s internationally recognized Sunni government. A Saudi-led coalition intervened on behalf of Yemen’s government shortly after the Houthis took Sanaa. 

In 2022, the Houthis control the vast majority of Yemen’s north. For the past year, the Houthis engaged in and escalating conflicts in the Marib province, home to major oil and gas infrastructure and Yemen’s last northern political stronghold. 

The geopolitical implications of these tussles are vast. In past months, Washington and Tehran have been trying to negotiate a nuclear deal; the Houthi attacks may hinder de-escalation in this region. Militaristic instability raises concerns about potential supply disruptions in the region later this year. Analysts have also added that escalating tensions may mean that the Iran-U.S. nuclear deal is called off “for the foreseeable future,” meaning that Iranian oil would be off the market and therefore decreasing global supply for non-Iranian crude oil of a similar grade. 

Amidst such conflicts, corporate promises offer a shred of promise. The U.A.E.’s Abu Dhabi National Oil Company (ADNOC) has stated that it will ensure an uninterrupted supply of products both locally and internationally, even after the attack on its Mussafah fuel depot. 

History reveals that the U.S., an international ally of Yemen’s, has hardly stood by. In fact, the U.S. has collaborated with the Yemeni government to combat terrorism and extremist violence since 2000. Since 2002, the U.S. has launched almost four hundred airstrikes in Yemen. While the Iran-backed Houthi rebels do not pose a direct threat to the U.S., their attacks on Saudi Arabian infrastructure and territory threaten an important U.S. ally. The U.S. may choose to leverage its militaristic prowess if militaristic confrontations intensify.

A second layer of geopolitical conflict that complicates the surge in oil prices relates to Russia’s large troop presence near the Ukraine border. Under the specter of a Russian invasion, U.S. and German officials have discussed deterrence methods, including halting Russia’s Nord Stream 2 gas pipeline. As conflicts rage on in Yemen, other oil producing countries within the Organization of the Petroleum Exporting Countries (OPEC) are struggling to produce oil at their allowed capacities under the OPEC+ agreement with Russia. 

Raising oil prices comes at the confluence of intensifying political and diplomatic friction between Yemen, the U.S., Ukraine, and Russia. Now, the tight supply and demand amidst worsening geopolitical conflicts raise the question of whether soaring oil prices will only add fuel to the flame.

By: Rhine Peng

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