The price of oil jumped immediately on the news of air attacks on Yemen. The move, partly reversed the next day, is logical but this fight could end with an uneasy truce - and cheaper crude.
Saudi Arabia has led a group of Sunni governments in bombing raids of Iran-backed Shi'ite forces in Yemen. Houthi militia has taken over most of the troubled West Asia state, a country that borders the Bab-el-Mandeb strait of the Gulf of Aden, a key chokepoint for oil tankers going through the Suez Canal.
The disaster scenarios are all too easy to envisage. The Gulf of Aden could be blocked to shipping. Or the war could expand into a regional Sunni-Shia conflagration. In the chaos, oil exports from the West Asia, which account for about 20 per cent of total world consumption, would fall sharply. Shortage and panic could push up prices.
As thing stand, however, it seems unlikely that the Gulf of Aden will be closed. Yemen has been in or on the edge of civil war for most of the last five decades, with many foreign powers involved. But the Strait itself has almost always stayed open, not least because of a big American naval base on the other side in Djibouti.
The danger of escalation is real. The region's shift in power structure has already spurred much violence and, as with all military conflicts, things could deteriorate rapidly. But that is a risk, not a certainty. The fall of the Sunni government in Iraq and the rise of Iranian influence in Syria should have already shown the Saudis the limits of their own regional clout. If the fighting in Yemen ends in a stand-off, Iran might decide to limit its regional ambitions.
Suppose that some sort of reason prevails, with both powers recognising that each has the will and the means to block the other's plans, but neither can prevail totally. An uneasy truce, combined with an Iranian nuclear agreement, would open the path to increased Iranian and perhaps Iraqi oil production.
That would bring lower oil prices. Producers would be unhappy, but they could look ahead. Ultimately, the best way to keep prices at a level which is acceptable to them is by getting all the major low-cost producers on the same side.
