Fears of higher oil prices after Red Sea attacks

Analysts are cautioning that the recent attacks on commercial ships in the Red Sea, orchestrated by Houthi rebels in Yemen, have the potential to drive up the prices of oil and other goods. In response to the attacks, several companies have temporarily halted shipments through the affected route. Maersk, the world’s second-largest shipping line, announced its decision to reroute some vessels around Africa’s Cape of Good Hope. The severity of the situation has prompted the United States to initiate an international naval operation aimed at safeguarding ships navigating the Red Sea route. Participating countries in this security effort include the UK, Canada, France, Bahrain, Norway, and Spain.

The Red Sea is a crucial passage for oil and liquefied natural gas shipments, as well as consumer goods. It spans from the Bab al-Mandab Strait, also known as the Gate of Tears, in the south near Yemen’s coast, to the north where it meets the Suez Canal. Houthi rebels, expressing support for Hamas in its conflict with Israel, have declared their intent to target vessels they believe are heading for Israel. However, some companies, such as Investor Chemical Tankers, whose vessel MT Swan Atlantic was attacked, assert that their ships have no links to Israel.

Despite the launch of an international naval operation, Maersk indicated uncertainty about when it would resume journeys along the Red Sea route. The company mentioned that a case-by-case assessment would determine adjustments, including diversions via the Cape of Good Hope and other contingency measures. The alternative route around the Cape of Good Hope adds approximately 3,500 nautical miles to the journey, extending it by about 10 days.

Ship attacks have escalated recently, with the owner of the Swan Atlantic tanker reporting an attack by an “unidentified object.” Maersk also described the situation as “alarming” following a “near-miss” incident and another attack on a container ship. Major players in the energy industry, such as BP, have temporarily paused crude shipments through this critical trade route. Shell has yet to comment on the situation.

While there have been minimal changes to oil prices thus far, concerns are rising about potential impacts on the global supply chain. Rerouting, especially for container carriers transporting finished goods, may lead to increased fuel and insurance costs, congestion at ports, and delays. Approximately 12% of global trade, amounting to about $1 trillion worth of goods annually, passes through the Red Sea. S&P Global Market Intelligence notes that nearly 15% of goods imported into Europe, the Middle East, and North Africa are shipped from Asia and the Gulf by sea.

Rising oil prices can contribute to higher inflation, which has been a concern in various regions. The International Maritime Organization (IMO) is closely monitoring developments and working with the shipping industry to ensure the safe passage of seafarers. The IMO’s secretary-general emphasizes the importance of allowing ships to trade worldwide in accordance with international maritime law and deems attacks against international shipping in the Red Sea area unacceptable.