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Tanker could be VLCC Abqaiq

Oil prices flat after Saudi tanker attack

Analysts fear further strikes

A failed attack on a Saudi oil tanker by Houthi militants in the Red Sea was shrugged off by traders despite analysts warning of growing political risks around a key global shipping lane for crude.

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The strike was launched at 1:30 pm local time (1030 GMT) Tuesday while the vessel was in international waters near the Bab al-Mandab strait, Turki al-Maliki, a spokesman for the Saudi-led coalition fighting in Yemen told the official Saudi Press Agency.

Maliki confirmed that this incident took place while the tanker was near the Yemeni port of Hodeidah.

Crude prices were largely unmoved by the attack. At 1705 GMT, front-month ICE Brent futures were up just 37 cents at $68.01/b.

Analysts said the attempted Houthi strike could raise the risk of international escalation in a region where about a third of the world's crude is produced.

"We continue to see Yemen as the most dangerous confrontation for the oil market as it is the one that could be the tripwire for a direct confrontation between Saudi Arabia and Iran," Head of Commodity Strategy at RBC Capital Markets Helima Croft said. "I think the oil market is being way too complacent about the risks posed by the Yemen conflict."

The targeted VLCC, possibly identified as the Abqaiq in a picture released by the Saudi government, is currently carrying around 2 million barrels of crude. According to data from S&P Global Platts trade flow software cFlow, the tanker was travelling past Hodeidah and briefly changed course due to the failed attack.



The vessel is now on its way to Ain Sukhna in Egypt which is the main offloading point for the SUMED pipeline into the Mediterranean. The bulk of Europe's crude oil imports from the Middle East arrive through this key pipeline.

However, security experts played down the wider threat posed to oil tankers in the region following the attack.

"I don't see this being an issue of security of exports,"security analyst and founder of the FrontLine Advisory Nicholas Krohley said. "The real threat is escalation of international involvement.The more sophisticated these attacks become the more potential there is for internationalization."


OIL CHOKE POINT


This is the first attack by the Houthi militants on a Saudi oil tanker passing through the key choke point between the Arabian Peninsula and Horn of Africa, a major trade artery for Saudi Arabia, the world's largest crude oil exporter.

Some 4.8 million b/d of oil and products passed through the Red Sea in 2016, representing nearly 5% of global maritime trade, according to the US Energy Information Administration.

Despite three years of intense bombing, the Houthis continue to control the capital and much of northern Yemen, as well as the Red Sea oil terminals at Ras Isa and Hodeidah ports.

Houthi officials have previously threatened to block the vital shipping lane through the Red Sea, saying they would take "strategic choices" if the coalition continued its efforts in the Hodeidah province.

The naval attack comes just days after Saudi air defenses intercepted and destroyed seven ballistic missiles fired from within Yemen towards various targets in the kingdom.

"This latest incident is just one more indication of the extremely dangerous nature of this proxy war. I think the Saudis will likely to exercise restraint while the Crown Prince is in the United States, but he could easily take the gloves off once he returns. The Houthis have vowed to step up attacks on the Kingdom so we expect further escalations," Croft said.

A spokesperson for the US Navy in the region was unable to comment when contacted.

Saudi-led Arab forces are pitted against the Houthis who seized control of the Yemeni capital Sana'a in late 2014. Saudi Arabia accuses Iran of arming the Houthi militants as part of a proxy war.

Houthi forces recently unveiled a new short-range ballistic missile, the Badr-1, which it said was developed domestically. In response to missiles launched toward Riyadh in December, the coalition imposed a blockade on Yemeni ports to stop the flow of arms from Iran.

-- Adal Mirza, adal.mirza@spglobal.com
-- Eklavya Gupte, eklavya.gupte@spglobal.com
-- Nick Coleman, nick.coleman@spglobal.com
-- Jack Jordan, jack.jordan@spglobal.com
-- Edited by Jonathan Dart, newsdesk@spglobal.com