Crude oil climbs amid renewed US-Houthi clashes in Middle East

Crude oil prices turned upward following new reports of two separate attacks in the Middle East. West Texas Intermediate had earlier fallen to $99.24, while Brent crude dropped to $106.82, both moves coming after the United States waived sanctions on Russian fuel.

The downturn appears to have lasted roughly 15 hours before reversing. Crude now trades higher on the session, with WTI at $103.13 and Brent just above $110.

Two developments fueled the advance. First, Iran's navy reported that the United States struck the Konarek naval base with "two light projectiles" early this morning, leaving two soldiers injured.

In addition, a pair of reports indicate that the Houthis claimed six attacks on Saudi Arabia over the past 48 hours, targeting the Yanbu oil facility owned by Aramco, the Shaybah oilfield, as well as airports in Riyadh and Abha. Saudi Arabia canceled this year's 'Davos in the Desert' conference on the same day.

The key question now is how each side will retaliate for the latest strikes. The United States had not attacked Iran in seven weeks, and President Trump had previously said there would be no attacks before the midterm elections. This latest strike was described as small, so it might be overlooked as Iran continues to target ships transiting the Strait of Hormuz.

Oil has been climbing steadily over the past two weeks and is now within striking distance of the September 14 high of $104.95. The market is approaching a point where any decline would come too late to aid President Trump in the midterms, making negotiations futile despite a Qatari report today about new proposals.

After the midterms, the calculus likely favors escalation, although both Republicans and Democrats may want to hone their anti-war credentials ahead of the 2028 election cycle. Should Republicans face a heavy defeat in the midterms, Congress might increase pressure on Trump to withdraw from Iran and seek a negotiated deal. Alternatively, the U.S. administration may decide that the blockade on Iran and periodic strikes on shipping constitute a winning long-term strategy.

More worrying than the near-term price action is the longer-dated outlook. October 2027 crude oil futures are priced at $83, up $13 since the beginning of September and above the pre-war peak. This suggests the market doubts President Trump's repeated assurances that oil prices will "come crashing down".