The Iran war has officially expanded into Saudi Arabia and the Red Sea, as Yemeni Houthi forces attacked Saudi tankers that had been rerouting to avoid the perilous Strait of Hormuz. On Thursday, oil prices climbed above $100 per barrel for the first time since early June.

The Iran-aligned Houthi assaults came on the heels of a U.S.-Saudi nuclear power agreement signed Wednesday to develop a civilian nuclear program in the kingdom—a move that arrives precisely as Washington seeks to curb the nuclear ambitions of Saudi Arabia's Iranian rivals. Saudi Arabia, the world's second-largest oil producer and de facto leader of OPEC, occupies a uniquely exposed position: its economy depends on exporting millions of barrels daily through chokepoints that are now contested on two fronts.

"The net effect of this nuclear deal is escalatory," said Jennifer Li, senior geopolitical analyst at Rystad Energy. "There isn't really a scenario in which the Iranians will view this favorably. The Iranians have positioned the Houthis, in theory, to go out and target this embargo specifically of Saudi vessels."

"From the perspective of Tehran, there's more willingness to escalate in terms of this whole 'Who blinks first?' dilemma," Li told Fortune. "I think it forces both sides to become more maximalist."

Shipping Disruptions and the Red Sea Crisis

The latest Houthi attacks in the Red Sea's Bab el-Mandeb Strait, off the coast of Yemen, are forcing Saudi tankers to reroute north through the shallower Suez Canal and into the Mediterranean Sea. To reach Asian markets, vessels must then navigate entirely around Africa—adding considerable time, fuel, and insurance costs to each shipment. Saudi Arabia had already been diverting substantially more of its oil through pipelines to the Red Sea in an effort to bypass Iranian threats in the Persian Gulf's Strait of Hormuz, through which roughly a fifth of global oil consumption routinely transits.

Bab el-Mandeb translates to "gate of tears" in Arabic, a name that reflects the strait's long-standing natural hazards for maritime travel. The narrow waterway links the Red Sea to the Gulf of Aden and is one of the world's most heavily trafficked trade arteries, handling substantial volumes of cargo and energy shipments between Europe and Asia.

While the nuclear deal may have provided additional motivation, Fernando Ferreira, director of the geopolitical risk service at Rapidan Energy Group, argued that the Houthis are acting on their own initiative, driven by decades of conflict with Saudi Arabia and seizing an opportune moment amid the broader escalation of the Iran war.

"The risk here is certainly skewed towards a return of a regional war in the Middle East that could be more disruptive than what we saw in the first round of the confrontation," Ferreira said. "The [Red Sea] is a big new factor that we didn't have to deal with in phase one."

Oil Market Pressure and Global Supply Shocks

With the global benchmark for crude now hovering near $100 per barrel, Ferreira cautioned that continued escalation could drive prices toward $120—approaching the late-April peak of $124 per barrel. In the United States, the average price of a gallon of regular unleaded gasoline has already climbed back to $4.09 and is rising rapidly.

Adding further strain to oil markets, Ukraine's drone strikes on terminals in Russia's Black Sea region prompted Kazakhstan on July 23 to cut its oil production to prevent storage facilities from overflowing. Meanwhile, concerns are intensifying over the prospect of a wider conflict, with U.S. forces deployed on the ground in Iran.

For now, Ferreira said he expects the Houthis to remain relatively restrained in their blockade operations and attacks.

"In a final round, we could start seeing attacks on Saudi energy facilities, but the Houthis understand this is the greatest point of leverage that they have over Riyadh," he said.

Nuclear Deal Under Pressure

The newly announced nuclear agreement with Saudi Arabia may already be in jeopardy. As of July 23, President Donald Trump is considering attaching additional conditions, stating that the Saudis would need to join the Abraham Accords—the 2020 U.S.-brokered normalization agreements between Israel and several Arab states, including the UAE and Bahrain—to normalize relations with Israel and that the civil nuclear deal would exclude uranium enrichment.

The original terms, announced a day earlier, appeared to include a potential pathway to uranium enrichment along with less rigorous oversight than is customary in U.S. nuclear agreements.

The deal drew sharp criticism from the outset. Democratic Connecticut Sen. Chris Murphy warned it would provoke a significant reaction from Iran, citing concerns that the U.S. was abandoning its nonproliferation objectives in the Middle East.

"This agreement will set off a nuclear race in the region, further disincentivizing Iran from limiting its own program," Murphy said in a statement.

Rystad's Li characterized the nuclear deal as an expedited concession to Saudi Arabia during wartime, noting that there are national security arguments for integrating U.S. nuclear supply chains into the kingdom rather than allowing Russian or Chinese suppliers to fill that role.

Trump also escalated his rhetoric following the attacks on Saudi tankers, issuing direct warnings to both the Houthis and Iran.

"If they do this again, the U.S. will hold Iran responsible, in that the Houthis are a surrogate and/or proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis, themselves," Trump wrote on social media.

Outlook: A Sustained Crisis

Given the confluence of events, Ferreira assessed that any peace agreement between the U.S. and Iran appears "very unlikely" under what he described as an "unsustainable status quo," at least in the near term.

"Well into 2027, we are likely in a world where Hormuz flows will remain constrained, there will remain risk, and we'll continue to see sporadic attacks on shipments," Ferreira said.

This story was originally featured on Fortune.com.