Oil prices surge after Saudi air strikes in Yemen

Oil prices surge after Saudi air strikes in Yemen
Demonstrators gather and burn tyres in Yemen's strategic city of Taez during a protest on March 25, 2015, against the Shiite Huthi militia's arrival in the city.

TOKYO/SINGAPORE - Brent crude oil prices shot up nearly 6 per cent on Thursday after Saudi Arabia and its Gulf Arab allies began a military operation in Yemen, although Asian importers said they were not immediately worried about supply disruptions.

The strike against Iran-backed Houthi rebels who have driven the president from the country's capital could stoke concerns about the security of oil shipments from the Middle East.

Oil prices jumped as traders saw the attacks as the latest incident in a conflict that is spiralling out of control in the world's richest oil region.

Brent crude oil futures rose as high as $59.71 a barrel, up almost 6 per cent since their last settlement, before dipping back to $58.84 a barrel at 0310 GMT, still up $2.36. US crude was up $2.19 at $51.40 a barrel.

"There is a big confrontation between Iran and Saudi (Arabia), between Sunnis and Shi'ites, in Syria and Iraq. This is more evidence that the geopolitical risk in the Middle East has become chronic," said Tony Nunan, risk manager at Japan's Mitsubishi Corp.

Despite the price jump, importers of Middle East oil were not immediately concerned about disruptions.

"Just because Saudi and others conducted air strikes doesn't mean the oil market becomes suddenly tight," said Masaki Suematsu, manager of the energy team at brokerage Newedge Japan in Tokyo.

He cautioned, though, that the conflict could spiral further beyond the airstrikes.

In South Korea, another big Asian importer, officials said the current troubles occurred near the Red Sea, waters that Arab Gulf supplies do not pass through on their way to Asia.

But Arab producers like Saudi Arabia, the United Arab Emirates, Kuwait and Iraq have to pass Yemen's coastlines via the tight Gulf of Aden in order to get through the Red Sea and Suez Canal to Europe.

The narrow waters between Yemen and Djibouti, at less than 40 kms (25 miles) wide, are considered a "chokepoint" to global oil supplies by the US Energy Information Administration and the region is heavily militarized by western navies.

Despite Thursday's price jumps, oil prices still remain around 50 per cent lower than in June 2014, when prices began to fall as surging global production was met with slowing demand and lower economic growth, especially in Asia.

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