Iran has quietly instructed Yemen's Houthi militia to stand ready to shut down the Red Sea oil corridor should the United States target the country's power infrastructure, a move that could send a fresh shock through global energy markets and threaten worldwide fuel supplies.
The warning surfaced on Thursday, the same day fresh explosions rattled the Iranian cities of Bandar Abbas, Qeshm and Ahvaz. The blasts struck the crossing that links Bandar Abbas to Shiraz, the span known as the Bandar Abbas-Khorstan-Lar bridge. Power cuts are now hitting parts of Kahorstan.
Why the Red Sea threat rattles oil traders
The Red Sea is one of the world's busiest shipping arteries, and a large volume of crude reaches global markets by passing through it. If that route were actually sealed off, tankers would be forced onto a longer and costlier detour, choking supply along the way. Like any commodity, when supply tightens while demand holds firm, prices climb. That is precisely why even the threat of a shutdown starts to move benchmark grades such as WTI Crude.
What WTI crude actually is
WTI, or West Texas Intermediate, is a type of crude oil sold on international markets. It is one of three major grades, sitting alongside Brent and Dubai Crude. WTI is often described as light and sweet because of its relatively low gravity and sulfur content. It is regarded as a high-quality oil that refines easily. It is sourced in the United States and distributed through the Cushing hub, widely called the Pipeline Crossroads of the World. It serves as a benchmark for the oil market, and its price is quoted in the media all the time.
What moves the price of oil
As with all assets, supply and demand are the key drivers of the WTI oil price. Strong global growth can lift demand and push prices higher, while weak global growth does the opposite. Political instability, wars and sanctions can disrupt supply and hit prices hard. The decisions of OPEC, a group of major oil-producing countries, are another key driver. The value of the US Dollar also shapes the price of WTI, since oil is predominantly traded in dollars, meaning a weaker dollar can make oil more affordable while a stronger one makes it dearer.
The weekly inventory data to watch
The weekly oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) also move the WTI price. Changes in inventories reflect the swings in supply and demand. If the data shows a drop in stockpiles, it can signal stronger demand and push the oil price up. Higher inventories can point to increased supply and drag prices down. The API report comes out every Tuesday and the EIA report the following day. Their results are usually similar, falling within 1% of each other 75% of the time, and the EIA figures are considered more reliable because it is a government agency.
How OPEC and OPEC+ set the tone
OPEC, the Organization of the Petroleum Exporting Countries, is a group of 12 oil-producing nations that jointly decide production quotas for member states at meetings held twice a year. Those decisions often ripple through WTI prices. When OPEC lowers quotas, it can tighten supply and push oil prices up, while raising output has the reverse effect. OPEC+ refers to a broader group that adds ten extra non-OPEC members, the most notable of which is Russia.
The inflation backdrop
Against this backdrop, the inflation picture matters too. The June CPI fell 0.4% on the month, the largest one-month decline since April 2020, dragging the annual rate down to 3.5% from May's 4.2% and snapping a three-month acceleration streak. Core prices went nowhere, flat on the month and easing to 2.6% year on year, with both readings coming in under consensus.
