Middle East Energy Corridor Risks Escalate as Oil Prices and Fed Rate-Hike Expectations Rise
FastBull FeaturedSummary:
The Houthis claim to have carried out a targeted operation near the Bab el-Mandeb Strait; another vessel attack is reported in the Strait of Hormuz...
【Highlights】
1. Houthis claim to have carried out a targeted operation near the Bab el-Mandeb Strait.
2. Iran says US compliance is a precondition for reopening the Strait of Hormuz as Oman talks focus on new shipping routes.
3. White House reportedly considers invoking the Defense Production Act to expand refining capacity as diesel prices hit a record high.
4. Hotter inflation data sharply boosts expectations for Fed rate hikes.
5. Escalating Middle East tensions push oil prices higher.
6. Another vessel attack reported in the Strait of Hormuz as prospects for US-Iran talks remain bleak.
【Details】
Houthis Claim Targeted Operation Near the Bab el-Mandeb Strait
Yemen's Houthi movement said on Sunday that it had carried out a targeted operation in the Kahab area near the Bab el-Mandeb Strait. According to the group, the operation killed four commanders from Saudi-backed forces and wounded five others.
A major Saudi crude oil pipeline was forced to shut down following an attack. The pipeline serves as an alternative export route designed to bypass the Strait of Hormuz, and its disruption pushed international oil prices higher.
Oman's foreign minister said a meeting that had been planned to discuss the establishment of a temporary shipping corridor through the Strait of Hormuz between Iran and several Gulf states had been postponed.
Iran Says US Compliance Is a Precondition for Reopening the Strait as Oman Talks Focus on New Routes
Iranian Foreign Minister Abbas Araghchi said Iran's condition for reopening the Strait of Hormuz is that the United States resume fulfilling its obligations under the Islamabad Memorandum.
Araghchi also said that a meeting scheduled to take place in Oman on September 14 will focus on arrangements for new maritime routes through the Strait of Hormuz.
White House Reportedly Considers Defense Production Act to Expand Refining Capacity as Diesel Prices Hit Record High
On September 12, reports said the White House was considering invoking the Defense Production Act to expand US refining capacity. The discussions followed President Donald Trump's recent meeting with executives from nearly a dozen refining companies, although no final decision has yet been made.
Refiners reportedly believe that federal funding would be better used to improve the efficiency of existing refineries or expand current facilities rather than build new ones.
US refinery utilization has reportedly reached 98%, while the national average price of diesel surpassed $6 per gallon for the first time.
In April, the US government authorized the use of the Defense Production Act to support expanded domestic oil production, refining and logistics capacity.
Against a backdrop of tight refined-fuel supplies and record-high diesel prices, the potential use of emergency powers to expand capacity reflects growing policy concerns over fuel-driven inflation. However, building new refineries is a lengthy process, and companies have shown limited willingness to invest. Markets will therefore focus on the final policy decision and whether plans to improve efficiency and expand existing facilities can be implemented quickly.
Hotter Inflation Data Sharply Boosts Expectations for Fed Rate Hikes
US consumer prices rose 0.4% month over month in August, according to CPI data released last Friday, well above July's 0.1% increase. The annual inflation rate held steady at 3.4%.
Core CPI, which excludes food and energy, rose 0.3% month over month, marking its largest increase in four months and exceeding the 0.2% monthly gain that markets had expected for the second consecutive month.
Gasoline prices jumped 3.9% after declining for two straight months, accounting for more than one-third of the overall monthly CPI increase. Prices for motor vehicle fuels, including diesel, surged 9.6% month over month.
Food prices rose only 0.1%, although prices for items such as eggs and dairy products continued to increase. Meanwhile, inflation-adjusted real wages declined from a year earlier.
The data quickly changed market pricing for monetary policy. According to the CME FedWatch Tool, traders raised the probability of a 25-basis-point Fed rate hike this week from around 67% before the data release to roughly 87%.
Most analysts believe that accelerating inflation, combined with signs of stabilization in the labor market from earlier data, has not only increased the likelihood of a rate hike this week but could also pave the way for further monetary tightening in October or December.
Escalating Middle East Tensions Push Oil Prices Higher
The Iran-aligned Houthi movement reached Perim Island, a strategic location near the Bab el-Mandeb Strait, last Friday and seized the nearby Red Sea coastal town of Dhubab.
The Strait of Hormuz had already been effectively blocked, disrupting around one-fifth of global oil and liquefied natural gas trade and forcing Saudi Arabia and other countries to rely more heavily on Red Sea shipping routes. The Houthi advance could put another critical energy corridor at risk, potentially pushing oil prices even higher.
Satellite imagery showed smoke rising near Saudi Arabia's East-West oil pipeline, a key export route that allows the kingdom to bypass the Strait of Hormuz.
According to data from the International Energy Agency, Saudi Arabia's crude oil supply fell to its lowest level in more than 30 years in August.
Although oil prices edged lower last Friday, both major benchmarks still closed the week above $100 a barrel. Under the market's current dominant narrative, any further escalation of tensions in the Middle East would raise supply concerns by pushing oil prices higher, reinforce inflation expectations and significantly increase the probability of Fed rate hikes.
Another Vessel Attack Reported in the Strait of Hormuz as Prospects for US-Iran Talks Remain Bleak
The Strait of Hormuz has recently seen multiple attacks and retaliatory actions. US Central Command said on Wednesday that it had destroyed 10 Iranian oil tankers the previous week. On Saturday, it said that over the 60 days since the US resumed its maritime blockade of Iran, it had diverted 100 commercial vessels and that "no vessel had passed through the blockade without authorization from US forces."
Trump said on Saturday that the war with Iran was likely to end soon after the November midterm elections and predicted that energy prices would fall sharply once the conflict ended.
Oil prices fell last Friday, with Brent crude settling 2.8% lower at $104.61 a barrel and WTI crude down 2.4% at $100.05. Despite the pullback, both benchmarks still posted substantial weekly gains.
However, international oil prices rose nearly 3% again on Monday after Saudi Arabia's East-West oil pipeline came under an airstrike, prompting authorities to shut down the critical pipeline.
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