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n a dramatic turn of events, the global oil market witnessed a surge on Friday as geopolitical tensions escalated in the Red Sea region. Simultaneously, stocks experienced gains following U.S. inflation data that reinforced the belief among investors that interest rates might soon decrease.
The oil prices rose by 4% after the United States and Britain announced launching strikes from both air and sea against Houthi military targets in Yemen. This military action was in response to the Houthi group’s attacks on ships in the Red Sea, marking a significant expansion of the ongoing Israel-Hamas conflict in Gaza.
Brent futures showed a 4% increase, reaching $80.52 per barrel, while U.S. West Texas Intermediate (WTI) crude saw a 4.1% rise, reaching $74.99.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “Oil prices have climbed sharply following the attacks, with Brent Crude now around 7% higher since early December, before Houthi rebels began targeting ships in the Red Sea.”
Reports coinciding with the UK and US military action suggest that the British government is modeling scenarios that could lead to a $10 per barrel increase if the Red Sea crisis continues, with gas prices at risk of rising by 25%.
Meanwhile, global stocks rallied on the prospect of a potential drop in interest rates. The MSCI All-World share index rose by 0.2%, reflecting a bounce in Europe, where the STOXX 600 increased by 0.7%. Aerospace and defense companies led the rally, with the sector index reaching a record high.
U.S. stock futures, however, fell by 0.2%, and government bond yields edged lower, indicating increased demand for safe-haven assets.
The dollar strengthened against major currencies, and gold, benefiting from investor risk aversion, rose by 0.9% to $2,046 an ounce. Traditional safe-havens like the Swiss franc held steady.
Analysts pointed out that if the situation escalates further, U.S. Treasuries and safe-haven currencies like the yen and Swiss franc would likely benefit.
In Asia, Japan’s Nikkei extended its impressive gains, jumping 1.5% to another 34-year high. This surge was supported by solid results from Fast Retailing Co, the owner of the Uniqlo clothing brand.
Chinese inflation data revealed that the country’s economic recovery remained weak in December, with the consumer price index falling by 0.3% from a year ago. However, separate trade data showed that exports rose at a faster-than-expected pace, while imports returned to growth.
On the geopolitical front, the United States and Britain’s military intervention against the Houthis in Yemen has raised concerns about the potential impact on global oil supplies and trade routes. The situation adds another layer of complexity to the existing geopolitical tensions in the region.
The oil market will likely remain volatile as developments unfold, and the international community closely monitors the evolving situation in the Red Sea region.
Source: Reuters
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