Wars and Military Conflicts

Oil hits seven-year high as Houthi attack on UAE rattles regional tensions

Key Points
  • The United Arab Emirates has vowed to retaliate against Houthi militants for a deadly attack on its capital Abu Dhabi on Monday that killed three people.
  • International benchmark Brent crude was trading at $87.25 on Tuesday around noon on Wall Street, its highest level since 2014.
  • The UAE is the world's seventh-biggest oil producer, pumping just over 4 million barrels per day.
A storage facility of oil giant ADNOC near the airport in the capital of the United Arab Emirates, Abu Dhabi, on Jan. 17, 2022.
AFP | Getty Images

DUBAI, United Arab Emirates — The United Arab Emirates has vowed to retaliate against Houthi militants for a deadly attack on its capital Abu Dhabi on Monday that killed three people, as fresh tensions in the region helped push oil prices to their highest level in seven years.

"We condemn the Houthi militia's targeting of civilian areas and facilities on UAE soil today," the UAE's Ministry of Foreign Affairs said in a statement following the attacks. "We reiterate that those responsible for this unlawful targeting of our country will be held accountable."

The ministry added that the UAE "reserves the right to respond to these terrorist attacks and criminal escalation."

International benchmark Brent crude futures advanced 1.19% to $87.51 per barrel, while U.S. West Texas Intermediate futures settled 2.43% higher at $85.43 per barrel. Both oil contracts notched their highest level since October 2014 earlier in the day after a subdued trading day on Monday as U.S. markets were closed for a public holiday.

Energy analysts have attributed oil's bullish run over recent weeks to signs of tightness in the market and persistent worries of a Russian incursion into Ukraine. The rising threat of a further deterioration in the Middle East's security climate has provided further support to oil prices, prompting some to forecast a return to triple digits.

Most significant attack on UAE

Yemen's Houthi rebels claimed responsibility for the attack, which took place Monday morning and caused fires that resulted in three petroleum tanker explosions near state oil firm ADNOC's storage facilities. The fires began in the industrial area of Musaffah and at a construction site near Abu Dhabi International Airport in the UAE capital, Abu Dhabi police said in a statement, adding that they believe the attack was carried out by drones.

One Pakistani and two Indian nationals died as a result of the attacks. Six other people were injured and are being treated for mild and moderate injuries, authorities said Monday.

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ADNOC on Tuesday said in a statement posted to Twitter that its operations were not affected by the fires, and that it activated business continuity plans to "ensure the reliable, uninterrupted supply of products to its local and international customers." It said in a prior tweet that the company was "deeply saddened to confirm that three colleagues have died."

The UAE is the third-largest oil producing member of OPEC, and ADNOC — the Abu Dhabi National Oil Company — controls oil operations in Abu Dhabi, home to the vast majority of the state's crude. The UAE is the world's seventh-biggest oil producer, pumping just over 4 million barrels per day.

"The attack is another reminder of the highly complex missile and drone threat faced by the UAE and the region's other main oil producers," said Torbjorn Soltvedt, principal MENA analyst at risk intelligence firm Verisk Maplecroft.

"Unless the Gulf Cooperation Council states can find a solution to diffuse regional tensions, or deter hostility from regional state and non-state actors, they will remain vulnerable to attacks."

The UAE is already moving to mitigate such threats by logistical means, speeding up plans to increase its oil storage capacity, "including at more secure underground facilities," Soltvedt said.

Supporters of the Houthi movement shout slogans as they attend a rally to mark the 4th anniversary of the Saudi-led military intervention in Yemen's war, in Sanaa, Yemen March 26, 2019.
Khaled Abdullah | Reuters

Attacks by Houthi rebels — with whom the UAE has been at war in Yemen since a Saudi-led coalition began bombing the country in 2015 — have been common in Saudi Arabia, but this is the most significant strike by Houthis in the UAE, and is the first in the country since 2018.

The UAE largely withdrew from the Yemen conflict in 2019, but continues to support forces in the country fighting the Houthis, who receive financial and military backing from Iran.

The damage to fuel trucks and storage infrastructure "will concern oil market watchers who are also keeping a close eye on the trajectory of ongoing nuclear talks between the US and Iran," Soltvedt added.

"With negotiators running out of time, the risk of a deterioration in the region's security climate is rising. Over the coming weeks, we expect oil's Middle East risk premium to come more sharply into focus."

— CNBC's Sam Meredith contributed to this report