The crisis in Yemen has escalated towards an all-out civil war. The president of Yemen, Abdrabbuj Mansour Hadi is reported to have fled the country as forces attempt to fight back against Shia rebels known as Houthis. The Houthis are reportedly backed by Iran and been extending their control over the country since September.
On Wednesday Saudi Arabia launched air strikes against the Houthis in support of the “legitimate government,” which has subsequently been condemned by Iran. The latest reports from Middle Eastern news wires are that Saudi ground troops are in Yemen.
The risk is that the crisis in Yemen will exacerbate regional tensions, with the intervention of neighbouring countries being the caveat for a much larger conflict. The Arab spring which started in December 2010, was a watershed moment which saw a revolutionary wave spread through the region
The Middle East is a major producer of Oil which has been ravaged by religious and political tensions. The ability to maintain production and supply levels is always in doubt when a conflict escalates.
The latest rally is a reprieve for Oil producers, as the price collapsed to a four year low earlier in the year. The dramatic move lower was due to weakening demand due to the global slowdown at a time of increase production. If the tension escalates this is likely to push Crude slightly higher, with any hightening of rhetoric from Iran perpetuating the move
The fears of oversupply seemed to have moved to the back of traders minds with Brent and WTI both up 5%.
Brent Crude May: $58.67/barrel
US WTI Crude May: $51.34/barrel