Oil Prices Surge as Houthis Enter Iran War Threatening Red Sea Routes

Markets React to Escalating Middle East Crisis

Global oil markets witnessed dramatic volatility Monday as Brent crude oil gained 1.5% to more than $114 a barrel, while U.S. West Texas Intermediate crude climbed almost 5% to about $104 a barrel, settling above $100 for the first time since 2022 . The surge followed Yemen's Houthis launching missiles at Israel, marking their first direct involvement in the U.S.-Israel war against Iran .

Average U.S. gasoline prices hit $3.99 a gallon Monday according to AAA, the highest since the summer of 2022 . Patrick De Haan, chief analyst at Gas Buddy, projected they would rise to $4 within 24 hours as the average price of gasoline in Florida surged to $4.29 . Stock markets tumbled in response, with investors growing increasingly concerned about the conflict's economic implications.

The conflict between Iran, the U.S. and Israel has entered its second month, with disruptions to oil and other energy and commodities supplies starting to reverberate around the world . The 2026 Iran conflict began on 28 February 2026, with joint US-Israeli airstrikes targeting Iranian leadership and military infrastructure, including a decapitation strike that assassinated Supreme Leader Ali Khamenei .

Critical Shipping Routes Under Threat

The Houthis' entry into the conflict raises alarming prospects for global trade. Analysts have told CNBC that the Houthis could attempt to choke off maritime traffic through the Bab el-Mandeb Strait, separating the Arabian Peninsula and the Horn of Africa — through which ships must pass to reach the Red Sea and the Suez Canal . The Bab al-Mandab Strait accounts for roughly 12 percent of global trade .

Saudi Arabia began diverting millions of barrels of crude to its Red Sea port of Yanbu, with as many as 4.6 million barrels per day loaded onto vessels at Yanbu over the past two weeks — more than three times the average over 2025 . However, the Saudi Arabian port of Yanbu is well within the range of Houthi missiles , threatening this critical alternative route.

If the Bab-el-Mandeb Strait becomes too dangerous for tankers to cross, Brent is "very likely" to surge past $150 a barrel over the next few months according to Artem Abramov, head of oil and natural gas research at Rystad Energy . Oil tankers would need to take vastly longer routes, adding several weeks to voyage times to Asia and deepening the crude supply crunch in Asia .

Economic Ripple Effects Accelerate

Europe is expected to suffer a second energy crisis as the conflict coincided with historically low European gas storage levels—estimated at just 30% capacity following a harsh 2025–2026 winter—causing Dutch TTF gas benchmarks to nearly double to over €60/MWh by mid-March . Asia is bearing the brunt of the global oil supply shock, as the region relies on the Middle East for about 60% of its oil .

Markets are reacting to higher crude pricing and the economic consequences, including higher short-term inflation expectations, volatility in interest rate markets, and growing concerns around supply shortages and the subsequent impact on corporate earnings . Aluminium prices climbed as much as six percent on the London Metal Exchange after Iran attacked two major aluminium plants in the Gulf .

The conflict's expansion beyond Iran's borders signals a dangerous new phase that could reshape global energy markets for months to come. With CENTCOM reporting that more than 66% of Iran's missile, drone, naval production sites and shipyards have been hit, and 92% of Iran's large naval vessels sunk , the war shows no signs of immediate resolution. Energy traders and policymakers worldwide are bracing for what could become the most severe oil disruption in modern history.