Oil’s $100 nightmare is back as worst-case scenario is taking shape

Oil’s retreat in the second half of 2026 was supposed to become easier as hope emerged of flows restoring through the Strait of Hormuz. Instead, the Middle East has just acquired another oil-market flashpoint.

Houthi missile and drone attacks on southern Saudi Arabia on Tuesday wounded 73 people, set fires at energy facilities and temporarily disrupted operations at sites linked to Saudi Aramco. The attacks also put the Red Sea’s Bab al-Mandeb chokepoint under fresh pressure just as the Strait of Hormuz remains severely impaired.

That combination is making the prospect of substantially lower oil prices before the end of 2026 look increasingly remote and the fear is oil can slip back into above-$100 territory.


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A second supply route is now under threat

Brent crude briefly climbed above $99 a barrel on Tuesday, reaching its highest level since July 24, while West Texas Intermediate approached $95. The move came after attacks on Abha, Khamis Mushait, Jazan and Najran, with Saudi authorities saying women and children were among the 73 wounded. Fires were reported at energy and utility facilities and some operations were temporarily halted.

The significance for oil markets goes beyond the immediate physical damage. Saudi Arabia is the world's second-largest oil producer after the United States and the world's leading crude exporter. Its ability to move crude through multiple routes has therefore been an important buffer during the war.

That buffer is now under pressure from both ends. The Strait of Hormuz, through which more than 20 million barrels a day moved before the war, is handling only a fraction of its previous traffic. The US Energy Information Administration estimates that flows through Hormuz averaged just 4.9 million barrels per day in the second quarter, down from 21.6 million in the final quarter of 2025.

At the same time, Saudi Arabia diverted more crude towards its Red Sea port of Yanbu, lifting flows through Bab al-Mandeb to an estimated 8.1 million barrels a day in the second quarter from 5.4 million in the previous quarter.

That makes the Houthi threat to the Red Sea route particularly important. The group declared a blockade of Saudi shipping in July and has attacked Saudi tankers. Tuesday's strikes show that its campaign is no longer confined to ships at sea.

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Bab al-Mandeb is an alternative route for Saudi crude when Hormuz is disrupted. Its alternatives through the Suez Canal and the SUMED pipeline are slower, more expensive and constrained by capacity.

The oil market is losing its escape routes

This is why Tuesday's attacks matter more than their immediate impact on Saudi production. Saudi Arabia can absorb isolated attacks on infrastructure. It has substantial spare production capacity and a sophisticated network of pipelines, terminals and storage facilities.

The bigger risk is that repeated attacks make shipping insurance prohibitively expensive, force tankers to avoid the Red Sea and prevent Saudi Arabia from using the route that has become increasingly important during the Hormuz crisis.

The effect is already visible in shipping. The Financial Times reported that Asian refiners could face longer waits for Saudi crude as tankers abandon the Bab al-Mandeb route. Insurance costs for ships operating in the region have also risen sharply, according to the FT.

The EIA's historical data show why that's important. Oil flows through Bab al-Mandeb more than halved in the first eight months of 2024 after Houthi attacks on commercial vessels began, falling to about 4 million barrels a day from 8.7 million in 2023. Tankers instead took the much longer route around the Cape of Good Hope.

The current situation is more dangerous because Hormuz and Bab al-Mandeb are being hit at the same time.

"Oil market participants now [are] pricing in a more prolonged disruption to shipping flows," Hamad Hussain, senior economist at Capital Economics, told the New York Times. Capital Economics has consequently moved towards an assumption of oil prices around $100 a barrel for the rest of 2026. Its analysts said last week that energy flows from the Middle East may not return to prewar levels until early 2027. That is a substantial change from the earlier expectation that prices would fall as the initial shock faded.

Why the market's hopes for cheaper oil are fading

The original case for lower oil prices rested on normalization. If shipping through Hormuz recovered, shut-in production returned and diplomacy between Washington and Tehran produced a settlement, physical supply would rise while the geopolitical premium would shrink. That process has stalled.

Jorge León, senior vice president at Rystad Energy, told the New York Times that investors had briefly become optimistic in August when Hormuz traffic recovered to roughly 8 million to 9 million barrels a day. The assumption was that President Donald Trump would face political pressure to reach an agreement with Iran before November's US midterm elections because high gasoline prices could hurt Republicans.

"The market overstated the importance of the midterm elections for president Trump," León said. The expectation that Trump would strike a deal, bring prices down and move on is now much less convincing.

The price response illustrates how quickly that optimism has disappeared. Brent was below $70 in early July after a US-Iran understanding. It subsequently reached $105 on July 23 as tanker attacks resumed and the Houthi blockade threat emerged.

Tim Waterer, chief market analyst at KCM Trade, told Reuters that the latest prices reflect both genuine physical tightness and a geopolitical risk premium. "Right now the risk premium is doing a lot of the heavy lifting," he said. Waterer expects oil to remain elevated while Hormuz remains contested and diplomacy stays fragile.

There is a limit to how high prices must go, however. Reuters reported Tuesday that flows through Hormuz remain large enough to prevent an immediate break above $100, while alternative export routes, rising production outside OPEC and weaker demand are cushioning the shock. China has also accumulated unusually large oil inventories. But those factors do not eliminate the underlying problem as they only buy time.

Goldman’s $120 warning

The market's downside risk has also become more asymmetric. Daan Struyven, co-head of global commodities research at Goldman Sachs, said attacks over recent days suggest that shipping disruptions could broaden and intensify.

Goldman sees a scenario in which oil rises as high as $120 a barrel if attacks on Middle Eastern vessels escalate. Conversely, it sees oil falling towards $80 if exports return to normal. Struyven told Bloomberg that the shipping risk had become an important factor for prices.

Also Read: Goldman Sachs’ big warning! Oil prices could soar to $120 if attacks on shipping continue in Hormuz Strait


That range captures the market's central problem. There is considerable room for oil to fall if the war suddenly de-escalates, but there are now several ways for prices to rise before that happens.

An attack on a tanker can raise freight and insurance costs. A prolonged closure of Hormuz can remove barrels from the market. A successful strike on a refinery can tighten refined products even without taking much crude production offline. An attack on a pipeline or export terminal can create a similar bottleneck. The Saudi facilities targeted Tuesday therefore matter even if the direct production loss turns out to be small.

Why Saudi Arabia and the Houthis are fighting again

The immediate conflict is rooted in Yemen's civil war. The Houthis, who are allies of Iran, seized large parts of northern Yemen, including Sanaa, and Saudi Arabia intervened in 2015 at the head of an Arab coalition supporting the internationally recognised Yemeni government. The war became a grinding conflict involving Saudi airstrikes, Houthi missile and drone attacks and extensive humanitarian suffering.

A UN-backed truce in 2022 sharply reduced large-scale fighting but did not produce a permanent political settlement.

The current escalation began building again in July. The Houthis declared a blockade against Saudi shipping and expanded their military activity along Yemen's western coast towards the Red Sea. Saudi-backed Yemeni forces subsequently launched a counteroffensive against Houthi positions.

The Houthis say Saudi Arabia has resumed attacks on their territory. Houthi military spokesman Yahya Saree said Tuesday's strikes on Saudi Arabia were retaliation for Saudi attacks. Saudi Arabia, meanwhile, says the Houthis are threatening its sovereignty and civilian population.

The dispute is therefore both a Yemeni civil war and part of the wider confrontation between Iran and its regional adversaries.

Why the flare-up has happened now

The US-Israeli war against Iran that began on February 28 transformed Yemen's conflict from a largely contained war into another front in a much wider regional confrontation. Iran has faced a US blockade and severe restrictions on its oil exports while fighting around Hormuz has sharply reduced Gulf shipping. That has increased the strategic value of Bab al-Mandeb.

Ahmed Nagi, a senior analyst at the International Crisis Group, told Al Jazeera that the Houthi push towards Yemen's western coast has a clear maritime dimension. Control of territory near the Red Sea would give the Houthis greater depth from which to pressure shipping. “The Houthis have already linked their military campaign to the Red Sea and the shipping routes around Bab al-Mandeb. So gaining more control over the … western coast could give them greater depth and allow them to sustain pressure on maritime traffic in the Red Sea. In that sense, the ground offensive and their maritime campaign are closely connected,” Nagi said.

The relationship between the land war and the maritime campaign is therefore becoming tighter. Houthi advances towards the coast can threaten ships. Saudi attempts to push the Houthis back can provoke attacks on Saudi territory. Those attacks can then threaten the infrastructure Saudi Arabia needs to keep its alternative export routes functioning.

Andreas Krieg, a Gulf expert at King's College London, described the situation as an "extremely uncomfortable dilemma" for Saudi Crown Prince Mohammed bin Salman. After years of trying to disengage from Yemen, Riyadh risks allowing the Houthis to dictate the escalation if it remains restrained.

Saudi Arabia has already signalled that it will respond, while Foreign Minister Prince Faisal bin Farhan has said the door to diplomacy remains open. That combination suggests Riyadh wants to restore deterrence without returning to the full-scale Yemen war it spent years trying to escape.

The crucial question for oil

The most important issue for oil prices is no longer whether one Saudi facility can be repaired quickly. It is whether the region can keep enough shipping lanes functioning for the global market to compensate for disrupted production.

The EIA's August outlook had already assumed that Middle East oil flows would take until early 2027 to broadly return to prewar patterns. It forecast Brent averaging $78 in the fourth quarter, with prices falling further in 2027 as production returns and inventories rebuild. Those assumptions are now under pressure.

The Houthi strikes may not guarantee $100 oil, let alone Goldman's $120 scenario. Demand weakness, non-OPEC production and alternative routes remain powerful counterweights. But the latest attacks remove another piece of the argument for a rapid return to cheaper crude.

The world is now watching two major oil chokepoints at once. Hormuz remains impaired while Bab al-Mandeb is becoming increasingly dangerous for Saudi exports. Until either the war recedes or those shipping routes become reliably safe again, the market has little reason to assume that the geopolitical premium will disappear.