Oil prices extended their slide on Friday, with Brent crude falling more than 1% to around $88 per barrel, as Saudi Arabia proposed leading a multinational maritime defense coalition to secure Red Sea shipping routes even as the US-Iran war keeps supply risks elevated. US West Texas Intermediate crude dropped over 2% to $81.70 a barrel.
Saudi Arabia is seeking to spearhead a coalition to enhance defense cooperation in the Bab El-Mandeb Strait, the Red Sea and the Gulf of Aden, according to reports. The Saudi defense ministry said 14 countries, including Turkey, Pakistan, Egypt, Sudan and Djibouti, had issued a joint statement backing the proposed maritime security alliance.
The decline came despite fresh signs of escalation. In the previous session, Brent settled down $1.71, or 1.88%, at $89.03 a barrel, and prices fluctuated sharply, briefly climbing to an intraday high of $93.31 after Washington and Tehran exchanged strikes on each other’s military targets once again. The US military said it had struck dozens of Islamic Revolutionary Guard Corps targets in response to Iranian ballistic missile attacks, and rejected Iranian claims that American aircraft had been destroyed.
The proposals follow last week’s announcement by Iran-backed Houthi militants in Yemen of a naval blockade on Saudi Arabia, threatening shipping through the Red Sea, a crucial route for Saudi oil exports and an alternative to the largely blockaded Strait of Hormuz. Egypt confirmed on Thursday that a drone strike caused a fire aboard two gas vessels at the Mediterranean port of Damietta, ruling out an accidental blaze and raising concerns that the conflict could spread further.
Despite the day’s losses, crude remains on track for its biggest monthly gain since March, with Brent up roughly 20% in July as the war that began on February 28 disrupted flows through the Strait of Hormuz, through which about one-fifth of global oil and liquefied natural gas normally passes. Iran has rejected Oman’s proposal for regional joint management of the strategic waterway, though the two sides continue discussions.
Bank analysts warn the geopolitical risk premium could return quickly. JPMorgan estimates that every additional month of supply disruption could add around $7 to $8 a barrel to Brent prices, and a three-month disruption could push monthly average Brent to about $114 a barrel. Goldman Sachs has warned that Brent could climb to $120 if shipping disruptions through the Strait of Hormuz continue, though its base case remains that tensions will eventually ease.
Traders said increased shipping flows through conflict zones and optimism over possible diplomatic steps, including the Saudi-led maritime coalition, were the main forces pulling prices lower on Friday. The proposed coalition is the latest sign that Gulf states are seeking to protect oil exports without a broader ceasefire, leaving the market to weigh fragile supply chains against hopes for de-escalation.
Sources: The Economic Times, Devdiscourse (Reuters Global Markets), Bloomberg
Author: Finance Desk
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