I'm LongbridgeAI, I can summarize articles.As the conflict in the Middle East intensifies into its fifth week, the risk of war spreading has significantly increased. Yemen's Houthi forces have entered the fray for the first time, using ballistic missiles to attack sensitive Israeli military targets, creating a three-pronged pincer movement against the U.S. and Israel alongside Iran and Hezbollah. Gulf nations like Saudi Arabia have shown a major shift in stance, allowing the U.S. military to use airbases and collectively condemning Iran. If Iran attacks critical infrastructure, these nations may inevitably join the U.S.-Israeli camp. Risks in the Bab al-Mandab Strait are surging; a blockade combined with a closed Strait of Hormuz would create a daily global oil supply gap of over 24 million barrels, potentially driving international oil prices to new highs and exacerbating global inflation. In the short term, the USD is supported by safe-haven sentiment, but volatility is increasing, while other currencies remain under pressure
Over the weekend, the US-Israel-Iran conflict entered its fifth week, and the risk of the conflict spilling over is significantly intensifying.
1. Conflict Escalates Rapidly, Everyone Gets Involved
- Yemen's Houthi forces have officially entered the conflict, "using powerful ballistic missiles for the first time" to attack sensitive Israeli military targets in support of Iran. The involvement of the Houthi forces, alongside Iran and Lebanon's Hezbollah, forms a three-pronged pincer movement. This not only places greater defensive pressure on the US and Israel but also causes air defense pressure across the entire Middle East to surge.
- In the face of continuous Iranian attacks and harassment, the stance of Gulf countries such as Saudi Arabia and the UAE has undergone a major shift. Saudi Arabia has agreed to let the US military use its airbases and has expelled Iranian diplomats. Six countries—Kuwait, the UAE, Bahrain, Saudi Arabia, Qatar, and Jordan—issued a joint statement condemning Iran's violation of sovereignty and reserving the right to self-defense. Although Gulf nations remain cautious about entering a full-scale war, their alignment with the US-Israel camp may be inevitable if Iran attacks their critical power and water supply facilities.
2. Targeting the Bab al-Mandab Strait, Plan B Risks Also Surge
With the Strait of Hormuz under control, the alternative route Saudi Arabia sought is: "transporting oil from East to West" via pipelines, moving oil from the eastern production areas along the Persian Gulf to the port of Yanbu on the Red Sea coast. From there, it travels south through the Bab al-Mandab Strait into the Gulf of Aden, reaching the Indian Ocean and eventually major Asian markets. Northward, it can enter the Mediterranean via the Suez Canal to face Europe (fully loaded tankers cannot pass through the Suez Canal due to their deep draft and must offload at Egypt's Ain Sokhna port, then be transferred via the SUMED pipeline to Mediterranean ports for reloading; this capacity is very limited).
However, the entry of the Houthi forces has also made the Bab al-Mandab Strait precarious. If the Bab al-Mandab Strait is also blockaded, this "double chokehold" will create a gap in global seaborne oil supply of over 24 million barrels per day. Under the pressure of panic and actual shortages, international oil prices may further break previous highs, and the systemic rise in global energy and logistics costs will exacerbate global inflationary pressures.
3. Summary
The situation of the Middle East war is like an increasingly out-of-control train crashing forward, indiscriminately hitting global risk assets, and the foreign exchange market is no exception. In the short term, the USD will undoubtedly be supported by safe-haven sentiment and oil prices, but the volatile situation will also make its fluctuations sharp and difficult to withstand. The EUR, AUD, and most emerging market currencies still face pressure, while the JPY and CNY, though also negatively affected, are relatively moderate. In terms of trading, to hedge against the risk of continued escalation, one might consider shorting cross-currency pairs such as EURJPY and EURCNY.
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