Oil hits $111 as Houthi strikes on Saudi Arabia reignite inflation fears

Oil just hit a five-month high, and the trigger is a war that keeps finding new targets. Brent, the benchmark for two-thirds of the world's crude, traded 1.52 percent higher at $111.30 per barrel on Tuesday, while West Texas Intermediate climbed 2.30 percent to $100.80. Those are levels not seen since mid-May, and they came after Iran-backed Houthi rebels in Yemen claimed a fresh wave of strikes on Saudi Arabia. On Friday, Brent had already touched $110 for the first time since May, and WTI topped $100 for the first time in a month. Tuesday's move confirms the rally is not a blip.

The Houthis said they carried out six attacks on the kingdom on Monday, hitting King Khalid International Airport in Riyadh, a military airbase near Abha International Airport, a naval task-force camp, and a Saudi radar in Bir Askar. The strikes targeted energy, airport, and military infrastructure, and they were enough to drag Gulf stock markets down. For anyone pricing energy, shipping, or inflation, this is the story: a persistent attack campaign on a major producer's infrastructure, with no off-ramp in sight.

The supply math is getting tighter by the day. The Strait of Hormuz, which before the war carried a fifth of the world's energy exports, remains under pressure from congestion and persistent attacks. Gulf oil producers have responded by pushing tanker transfers as far as India's coast and slashing prices to keep crude flowing to Asian buyers. It is a makeshift export network, and it is buckling. The International Energy Agency last week agreed to release more than 20 million barrels of diesel to the market in response to a surge in diesel prices, a sign that the pain is showing up well beyond crude.

Washington is trying to add supply from an unexpected place: the shadow fleet. US Energy Secretary Chris Wright said on Monday that the administration is willing to allow oil tankers placed under sanctions to begin a process to legitimately ship crude. But analytics firm Kpler says the easing would have little effect on record freight rates. Of the nearly 160 vessels under sanctions from the Treasury Department's Office of Foreign Assets Control, only 24 could return to mainstream trade once age and ownership restrictions are taken into account. In other words, the relief valve is small.

The inflation channel is where this gets uncomfortable for central banks. Elevated energy prices are nudging inflation upward, and that raises the probability of another interest rate increase by the US Federal Reserve, which is scheduled to meet next week. Analysts now expect a second straight raise as Fed officials try to tame inflation. "Brent crude hovering near five-month highs following geopolitical tensions in the Middle East has reignited fears of sticky inflation," analysts at US energy company Duncan Oil said. "Surging energy costs have led investors to believe the Fed will keep interest rates higher for longer to tame inflation."

The diesel market shows how far the shock has spread. Wholesale diesel already surpassed $200 per gallon in Singapore and hit roughly $220 in Europe and the US, according to the Paris-based IEA. Those numbers matter because diesel is the fuel that moves trucks, trains, ships, and farm equipment; when diesel spikes, the cost of nearly everything that travels follows. For CFOs and supply chain leaders, this is not an abstract geopolitical headline; it is a line-item problem.

For executives watching this, the strategic stakes are clear. Energy costs are a direct input for manufacturers, logistics operators, airlines, and any business with a fleet. A five-month high in crude, record freight rates, and a Fed that may keep rates higher for longer is a triple squeeze: input costs up, borrowing costs up, and consumer demand at risk if inflation stays sticky. The Houthi campaign shows no sign of pausing, and the supply response from both the IEA and Washington is limited in scale. Boards and CFOs will be watching the Fed meeting next week with more than usual interest, because the decision will shape borrowing costs, consumer spending, and the price of nearly everything that moves.