Oil prices rose to a two-week high Monday following the US attacks on the Houthis over the weekend amid fears that the Iran-backed rebels will attack energy infrastructure in retaliation and rising prospects of regional escalation involving Iran.

What happened: US Secretary of Defense Pete Hegseth said Sunday the military would keep attacking the Houthis until the rebels ended their assault on shipping in the Red Sea. Washington carried out several airstrikes on Saturday that killed at least 53 people, marking the biggest American military operation in the Middle East since President Donald Trump returned to the White House in January.

Brent oil futures rose above $71 on Monday following the military strikes. The Middle East and North Africa region is energy rich, and the Houthis have a history of attacking energy infrastructure. In March 2022, the militia used drones to attack an Aramco oil refinery in neighboring Saudi Arabia in response to attacks by the Riyadh-led Arab coalition in Yemen.

Global benchmark Brent crude hit $71.53 a barrel Monday morning Eastern Time, up 1.3% compared to its close on Sunday.

The price of oil was also lifted by China’s ambitious financial stimulus measures to increase pay and reduce the country’s financial burden in a bid to help its ailing economy recover.

China was a major factor in keeping oil prices low in 2024 as demand from the world’s second-largest economy was lower than expected, said Bjarne Schieldrop, chief commodities analyst at SEB.

“News of forthcoming supportive measures in China for consumers, wages, real estate market and equity market thus naturally creates some optimism for oil,” he told Al-Monitor.

Schieldrop went on, “The forceful US attacks on the Houthis in Yemen are a reminder that Trump is ready to be heavy handed. The result could be yet more disruptions in the flow of oil through the Red Sea and the Suez Canal. But another concern is that if Trump decides to use a heavy hand also toward Iran, then we would lose supply for real and not just disruptions of transport routes.”

The potential for escalation with Iran increased on Monday after Trump indicated that any further attacks from the Houthis would be viewed as direct actions from Tehran.

“Every shot fired by the Houthis will be looked upon, from this point forward, as being a shot fired from the weapons and leadership of IRAN, and IRAN will be held responsible, and suffer the consequences, and those consequences will be dire!” Trump wrote in a post on his platform Truth Social.

Why it matters: Dan Pickering, founder of Pickering Energy Partners, told Al-Monitor, “Oil’s recent uptick can be chalked up to some combination of China stimulus, renewed Red Sea tensions and trading dynamics following last week’s selloff."

He added, “Further gains depend on potential Iranian sanctions and/or OPEC+ production discipline. Otherwise, oil likely remains heavy.”

Kitt Haines, global crude analyst at Energy Aspects, told Al-Monitor, “The stability in macro markets has helped calm things down across asset classes, and the news over the weekend of military action against the Houthis, Chinese January-February data and of course Chinese economic stimulus plans have certainly boosted oil prices today.”

Source: Al-Monitor