$100 ghost: Oil's worst-case scenario is taking shape

Nifty23, 635.10-144.06. Gold (MCX) (Rs/10g.)152, 789.00-29.0.

Key points

• While West Texas Intermediate approached $95, brent crude briefly climbed above $99 a barrel on Tuesday, reaching its highest level since July 24.
• (Catch all the Business News, Breaking News and Latest News Updates on The Economic Times.).
• 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.
• Oil pricesgeopolitical risks oilHouthi attacks Saudi Arabiaoil market volatilityMiddle East oil supplyStrait of HormuzSaudi AramcoBrent crudeSaudi Arabia.
• India faces higher oil import costs as crude rates surge on West Asia supply risks A second supply route is now under threat.

Nifty23, 635.10-144.06. Gold (MCX) (Rs/10g.)152, 789.00-29.0. The Economic Times daily newspaper is available online now. Oil's $100 nightmare is back as worst-case scenario is taking shape. Oil's $100 nightmare is back as worst-case scenario is taking shape. ET OnlineLast Updated: Sep 08, 2026, 08: 28: 00 PM IST.

Houthi attacks on Saudi energy facilities have disrupted oil operations. These strikes additionally pressure the Bab al-Mandeb chokepoint, impacting oil flows. The Strait of Hormuz remains impaired, creating a dual threat to global supply. This situation makes significantly lower oil rates before late 2026 increasingly unlikely. Oil rates may potentially slip back into above-$100 territory.

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 individuals, set fires at energy facilities and temporarily disrupted operations at sites linked to Saudi Aramco. The attacks additionally 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 rates before the end of 2026 look increasingly remote and the fear is oil can slip back into above-$100 territory.

While West Texas Intermediate approached $95, brent crude briefly climbed above $99 a barrel on Tuesday, reaching its highest level since July 24. 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 documented at energy and utility facilities and some operations were temporarily halted. Live Events. You Might Additionally Like.

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Meanwhile, 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 significant buffer during the war. That buffer is now under pressure from both ends. In practice, 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. Meanwhile, 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 significant. Meanwhile, 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.: India's fuel demand fell 2.8% y/y in August 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 create shipping insurance prohibitively expensive, force tankers to avoid the Red Sea and prevent Saudi Arabia from using the route that has become increasingly notable during the Hormuz crisis. For context, the effect is already visible in shipping. The Financial Times documented 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 additionally risen sharply, according to the FT. The EIA's historical data show why that's significant. 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 regarding 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 since Hormuz and Bab al-Mandeb are being hit meanwhile. "Oil market participants now pricing in a more prolonged disruption to shipping flows, " Hamad Hussain, senior economist at Capital Economics, informed the New York Times. Capital Economics has consequently moved towards an assumption of oil rates around $100 a barrel for the rest of 2026. Its analysts remarked 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 rates would fall as the initial shock faded. Why the market's hopes for cheaper oil are fading.

For context, the original case for lower oil rates 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, informed 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. In practice, the assumption was that President Donald Trump would face political pressure to reach an agreement with Iran before November's US midterm elections since high gasoline costs could hurt Republicans. "The market overstated the importance of the midterm elections for president Trump, " León remarked. The expectation that Trump would strike a accord, bring costs down and move on is now much less convincing. The cost response illustrates how swiftly 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, informed Reuters that the latest costs reflect both genuine physical tightness and a geopolitical risk premium. "Right now the risk premium is doing a lot of the heavy lifting, " he remarked. Waterer expects oil to remain elevated while Hormuz remains contested and diplomacy stays fragile. There is a limit to how high rates must go, even so. While alternative export routes, rising production outside OPEC and weaker demand are cushioning the shock, reuters documented Tuesday that flows through Hormuz remain substantial enough to prevent an immediate break above $100. China has additionally accumulated unusually substantial oil inventories. But those factors do not eliminate the underlying difficulty as they only purchase time. Goldman's $120 warning.

Meanwhile, the market's downside risk has additionally become more asymmetric. Daan Struyven, co-head of global commodities research at Goldman Sachs, remarked 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 informed Bloomberg that the shipping risk had become an notable factor for rates.: Goldman Sachs' sizeable warning! Oil rates could soar to $120 if attacks on shipping continue in Hormuz Strait That range captures the market's central challenge. There is considerable room for oil to fall if the war suddenly de-escalates, but there are now a number of ways for costs to rise before that happens. An attack on a tanker can raise freight and insurance costs. In practice, 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 sizeable parts of northern Yemen, including Sanaa, and Saudi Arabia intervened in 2015 at the head of an Arab coalition supporting the internationally recognised Yemeni administration. 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. Notably, 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 introduced a counteroffensive against Houthi positions. The Houthis say Saudi Arabia has resumed attacks on their territory. Houthi military spokesman Yahya Saree remarked Tuesday's strikes on Saudi Arabia were retaliation for Saudi attacks. Saudi Arabia, meanwhile, notes 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.

For context, 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 rose the strategic value of Bab al-Mandeb. Ahmed Nagi, a senior analyst at the International Crisis Group, informed Al Jazeera that the Houthi push towards Yemen's western coast has a clear maritime dimension. Control of territory near the Red Sea would offer 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 offer 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 remarked. For context, 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. While Foreign Minister Prince Faisal bin Farhan has remarked the door to diplomacy remains open, saudi Arabia has already signalled that it will respond. That combination suggests Riyadh wants to restore deterrence without returning to the full-scale Yemen war it spent years trying to escape. In practice, the crucial question for oil.

Meanwhile, the most significant problem for oil rates is no longer whether one Saudi facility can be repaired swiftly. 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 rates 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. Notably, 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. Add Now!

Taken together, the developments around $100 ghost: Oil' s worst point to a situation that is still moving, and the coming days should bring more clarity.