Oil Above $111: Risks at Hormuz and Bab al-Mandab Persist

Geopolitical risks in the Middle East have returned to the forefront of global market drivers, with oil prices rising to levels exceeding $111 per barrel amid growing concerns over maritime navigation security and energy supply stability. At the same time, Gulf markets are facing varying degrees of pressure, while gold and Bitcoin prices are declining under the influence of shifting US inflation expectations and monetary policy. Brent crude recorded levels close to $111 per barrel, nearing its five-month high, while US crude moved above the $100 mark, supported by escalating fears of widening regional tensions and reports of ships being attacked over the past two weeks. Reports cited by Reuters indicated that at least 18 ships were attacked during that period, bolstering the risk premium traders are adding to oil prices. These movements do not reflect only fears of actual supply shortages, but also reveal rising insurance and shipping costs, and increased market sensitivity to any developments that could threaten vital sea lanes, particularly the Strait of Hormuz and the Bab al-Mandab, which serve as a key axis for energy and trade flows between the East and the West. Conversely, the possibility of increased Russian supplies remains a factor that could curb price surges, after International Energy Agency data showed Russia’s crude oil production in September rose to 8.43 million barrels per day, an increase of 65,000 barrels per day, though it remained about 870,000 barrels per day lower than its level a year ago. The importance of the Strait of Hormuz and Bab al-Mandab is growing; the Strait of Hormuz serves as a main artery for Gulf oil and gas exports, while Bab al-Mandab represents a strategic point for ships passing between the Red Sea and the Gulf of Aden, and onward to the Suez Canal and European markets. Continued tensions in these sea lanes mean that risks are not limited to oil prices alone; they can extend to routes for crude and refined product tankers, commodity supply chains, shipping costs, delivery schedules, and war risk insurance premiums. Market sensitivity is heightened when risks in the Gulf and the Red Sea coincide, as changing ship routes can increase travel time and costs, pressuring margins for shipping and trading companies, and imposing additional bills on energy and commodity-importing economies. However, diversifying routes does not mean a quick ability to dispense with the straits; building alternative pipelines, ports, and logistical capacities requires sufficient funding, time, and capacity, and alternatives cannot necessarily replace all current flows. Domestically, major indices at the Kuwait Stock Exchange showed mixed performance at the close of Tuesday’s trading, with eight sectors declining, four rising, and the utilities sector remaining stable. The First Market Index fell by 0.16%, and the General Market Index dropped by 0.09%, while the Main Market 50 Index rose by approximately 0.64%, and the Main Market Index increased by 0.26%. Trading value reached about 61.63 million Kuwaiti dinars, distributed across 213.58 million shares through 20,140 transactions, reflecting continued trading activity despite mixed index trends. The basic materials sector led declines with a drop of 2.49%, while the healthcare sector led gains with a growth of 7.37%.

These developments underscore the importance of distinguishing between the impact of rising oil prices on the macroeconomy and their direct effect on equities. While higher crude prices may bolster public revenues, they do not guarantee a broad-based rally in stocks, particularly as geopolitical concerns and financing and operating costs mount.

Pressure spread to several Gulf stock markets during Tuesday’s trading, amid escalating fears over the security of critical infrastructure and air and maritime navigation. According to market data published by Reuters, the Saudi index fell by about 1.1%, the Dubai index dropped by roughly 0.3%, and the Qatar index declined by approximately 0.7%, while the Abu Dhabi index rose by about 0.8%. This mixed performance reflected differences in the nature of listed companies, sector weights, and revenue sources.

The moves came amid reports of Houthi attacks targeting strategic Saudi sites, including energy facilities and airports—reports that Saudi authorities had not independently confirmed, according to Reuters. These developments indicate that investors are not treating higher oil prices as an automatic boon for markets; rather, they are weighing potential oil revenues against risks that could affect investments, economic activity, and operating costs.