Oil at $120 on the table as Yemen and Iran pressure Hormuz—will Gulf talks cool the fire?

Fighting and maritime disruption across the Middle East are tightening the energy risk premium, with analysts warning that Brent could push toward $120 per barrel by year-end if escalation continues. Reuters, citing RBC Capital Markets analyst Helima Croft, points to “gravely imperiled” shipping through Bab el-Mandeb as Houthi advances worsen the threat to sea lanes. In parallel, Gulf News reports Iranian strikes hitting US jets in Jordan while Houthi attacks threaten Saudi pipeline infrastructure, coinciding with Brent surging above $107. The cluster also highlights a diplomatic track: Arab News says Iran and South Korea’s foreign ministers discussed Hormuz in a phone call, while Bloomberg reports Gulf states are considering a meeting with Iranian officials next week. Strategically, the story is about a widening contest over chokepoints and escalation ladders—Bab el-Mandeb for Red Sea flows and the Strait of Hormuz for Persian Gulf exports. The Houthis’ pressure on shipping and the reported threat to Saudi pipeline assets raise the probability that disruptions become persistent rather than episodic, benefiting actors that can sustain uncertainty and bargaining leverage. At the same time, the reported US-Iran conflict widening (including strikes affecting US aircraft in Jordan) increases the risk of miscalculation, especially if maritime incidents or infrastructure damage trigger retaliatory cycles. The diplomatic signals—Hormuz-focused calls and a potential first Gulf bloc meeting with Iran since the war began—suggest regional states may be trying to manage spillover while preserving room for deterrence. Market implications are immediate and multi-layered: crude benchmarks are reacting to both physical disruption risk and expectations of higher insurance and shipping costs. Brent moving above $107 and the RBC scenario of $120 by year-end imply a meaningful upside tail risk for energy equities and upstream cash flows, while also pressuring downstream margins in refining and petrochemicals. The reported threats to Saudi pipeline infrastructure elevate risk for Saudi-linked supply chains and for regional power and industrial feedstock pricing. In FX and rates, persistent oil strength typically supports higher inflation expectations, which can lift energy-sensitive sovereign risk premia and tighten financial conditions for importers, while boosting exporters’ current-account outlooks. What to watch next is whether the “next week” Gulf bloc meeting with Iranian officials produces concrete deconfliction steps for Hormuz and whether any parallel talks address Bab el-Mandeb security. Key indicators include reported operational impacts on shipping through Bab el-Mandeb and any measurable changes in pipeline throughput or repair timelines in Saudi infrastructure. On the escalation side, monitor further reports of strikes involving US assets in Jordan and any retaliatory language that could shorten decision windows. A practical trigger for de-escalation would be verifiable commitments on maritime safety corridors and incident hotlines; a trigger for escalation would be confirmed damage to export terminals or sustained interdictions that push Brent toward the $120 scenario.

Geopolitical Implications

• 01

  Dual chokepoint pressure increases the chance of structural disruption rather than temporary shocks.

• 02

  Regional states may pursue managed engagement with Iran to protect energy exports while deterring direct attacks.

• 03

  Incidents involving US assets in third-country airspace can accelerate retaliation and compress diplomacy timelines.

• 04

  If Gulf-Iran talks deliver operational deconfliction, energy risk premia could ease; if not, markets may reprice toward sustained disruption.

Key Signals

• —Changes in shipping schedules and insurance costs around Bab el-Mandeb.
• —Evidence of pipeline damage severity and repair timelines in Saudi infrastructure.
• —Any further incidents involving US aircraft or bases in Jordan or nearby airspace.
• —Concrete outputs from the planned Gulf bloc meeting with Iran next week, especially maritime safety mechanisms for Hormuz.