Oil prices fell by 1% after an UN-backed Yemen ceasefire took effect Saturday. Investors welcomed the truce, which led to oil prices dropping an average of 1% at the start of Asian trade on Sunday.
Middle East Welcomes Yemen Ceasefire
The nationwide Yemen ceasefire is the first truce in years since Yemen’s seven-year conflict started. In fact, the last coordinated cessation of hostilities throughout Yemen happened back in 2016.
The United Nations, which brokered the deal between the Saudi-led coalition and Iran-backed Houthi rebels, hopes this leads to peace.
The agency hopes to oversee an end to a seven-year-long civil war that killed thousands of Yemenis. It also led to displacement and starvation among millions of civilians.
The Yemen ceasefire will halt military operations on the Saudi-Yemeni border, which can prevent oil supply disruptions in the area. The truce will also allow fuel imports into Houthi–controlled areas.
In addition, the Yemen ceasefire will permit flights to operate from the capital’s Sanaa airport.
Yemen Ceasefire Started On First Day of Ramadan
Investors cheered the declaration of the two-month Yemen ceasefire, which coincided with the start of the Muslim festival of Ramadan.
Oil prices fell last week after President Joe Biden announced that the US will release 180 million barrels of oil from its reserves.
Biden said that the release of a million barrels a day for six months should help alleviate current oil shortfalls. As a result, oil prices fell by 13% last week.
With the announcement of the Yemen ceasefire, oil prices further fell by an average of 1%. Brent crude futures fell $1.01, or 1%, to $103.38 a barrel last Sunday.
Meanwhile, West Texas Intermediate crude prices fell by 84 cents or 0.9%. It’s now down to $98.43 a barrel.
Experts view the Yemen conflict, which spills over to its border with Saudi Arabia, as a threat to the oil supply.
Houthi rebels often stage rocket and mortar attacks on Saudi oil terminals and refineries in the area. Phil Flynn, Price Futures Group analyst, welcomed the truce. “This was a threat to supply, and a ceasefire would reduce that threat to supply,” he said.
UAE, Houthis Also Welcome Yemen Ceasefire
Meanwhile, the United Arab Emirates (UAE) welcomed the announcement of the ceasefire. The UAE, along with Saudi Arabia, supports the government of Mansur Hadi, who fled the country in 2015.
Hadi forces remain actively fighting the Houthis in controlling Yemen.
In addition, the Iran-aligned Houthi group also welcomed the ceasefire. The group, which opposes the Hadi faction backed by Saudi Arabia, UAE, and other Gulf states, also suspended military activities.
They declared their commitment to honoring the truce as long as the other side also abided with the conditions.
Yemen Ceasefire One Less Headache For the World Oil Market
The Yemen ceasefire presents one less headache for the global oil market. During the pandemic, oil-rich countries reduced production as demand shrank drastically.
With the world resuming its normal operations, demand for oil increased significantly. However, the Organization for Petroleum Exporting Countries (OPEC) remains hesitant to return oil production to normal levels.
Instead, they stuck to their plan of gradually increasing their output despite increased demand. This led to tightened oil supplies worldwide, which helped prices go up.
Then, Russia invaded Ukraine, which sent the oil market further into a tailspin. As Russia is one of the world’s largest oil producers, investors feared further shortened supplies of oil.
The US and Western countries placed Russia under an economic embargo, which can affect its ability to trade with other countries.
Houthi Targeting UAE and Saudi Arabia For Backing Hadi Government
Meanwhile, the Middle East conflict in Yemen also threatened further disruptions. Houthi rebels started attacking targets in UAE and Saudi Arabia once word came out of their support for Hadi.
Last January, rebels attacked three oil tanker trucks and an under-construction airport extension in Abu Dhabi.
The operation killed three workers and injured six others. On March 25, Houthi rebels struck an oil depot in Jeddah and other facilities in Riyadh.
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