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A Spreading War Rattles Global Energy Markets

Analysts say the consequences for energy prices and the world economy may be more serious in this later phase of a war that many had expected to be largely over by now.

Saudi Arabia is in a jam. The kingdom suffered little damage in the early phases of the conflict launched by Donald Trump and Israel against Iran last winter. Now, though, Mohamed bin Salman, the Saudi crown prince and de facto ruler, finds himself harried by both Iran and its Iraqi proxies in the north and the Tehran-allied, militarily proficient Houthi group that controls a swath of Yemen to the south.

The Houthis and Saudis had been observing a ceasefire, but it recently broke down, and the Yemeni group is on the move, attacking a Saudi refinery near the southern border and trying to obstruct Saudi shipping. “They are being squeezed on both sides,” said Karen E. Young, a senior research scholar at Columbia University’s Center on Global Energy Policy.

Like President Trump, who does not want to cede control of the Strait of Hormuz to Iran, the Saudis, too, appear to be locked in a stalemate with an opponent that, while vastly inferior in terms of resources, is still capable of inflicting economic pain. Because Saudi Arabia has long been the world’s cornerstone oil exporter, its predicament has roiled energy markets.

Already Brent crude has tested $110 a barrel in recent days. There is even greater upward pressure in the markets for the oil products that consumers and businesses must buy to power their cars and run their factories. Analysts say the consequences for energy prices and the world economy may be more serious in this later phase of a war that many had expected to be largely over by now.

With jitters over government debt growing, bond traders appear to be closely watching whether rising oil prices will further feed inflation and lead to interest rate hikes. The buffers that cushioned the shock waves of the early months of the war are worn down.

“We’re back on the escalatory ladder,” said Richard Bronze, head of geopolitics at Energy Aspects, a London-based research firm. “Each attack and each disruption will cause that much more economic fallout because of the oil market being more vulnerable than it was in the spring.”

The energy markets coped with the disruptions of the early months of the war........

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