The fighting in Yemen has caused a rally in the oil markets, as people worry that there could be a disruption to the oil supply.
How big of a deal would it be?
Yemen actually doesn’t produce much oil, but it is on one side of a major global oil chokepoint — a strait narrow enough that oil tanker traffic often needs to be regulated. If the fighting gets bad enough, it could stop tanker traffic through this point.
How big of a deal would that be?
This chart from JPMorgan shows the Bab el-Mandeb strait between Yemen and Djibouti sees about 3.4% of the global petroleum production, although those are 2011 numbers. More recent data show the numbers for Bab el-Mandeb rising to about 4.2% in 2013.
Here’s the deal with the Bab el-Mandeb strait, according to the Energy Information Administration:
The Bab el-Mandeb Strait is 18 miles wide at its narrowest point, limiting tanker traffic to two 2-mile-wide channels for inbound and outbound shipments. Closure of the Bab el-Mandeb could keep tankers from the Persian Gulf from reaching the Suez Canal or SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost. In addition, European and North African southbound oil flows could no longer take the most direct route to Asian markets via the Suez Canal and Bab el-Mandeb.
Oil traders will be monitoring developments here carefully.
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