Global oil prices surged on Monday following BP’s announcement that it had halted tanker shipments through the Red Sea. This decision was made due to the increased threat posed by drone and missile attacks on merchant ships by the Houthi armed group in Yemen, turning the Red Sea into a perilous shipping route. The disruption of shipments through the Red Sea has raised concerns about potential disruptions to traffic in the Suez Canal, a crucial passage for both crude and refined oil products.
The Houthi attacks on ships in the region have been occurring since October 7, parallel to Hamas-led attacks on Israel, and have been directed towards vessels operated by Israel and those headed for Israeli ports. Both the Houthis and Hamas are supported by Iran.
In response to the deteriorating security situation, BP has decided to temporarily suspend all transits through the Red Sea. The United States and other military forces have reported shooting down over a dozen drones in the area over the weekend, prompting US Defense Secretary Lloyd J. Austin III to call for an end to Iran’s support for Houthi attacks. These incidents have contributed to a 3% rise in Brent crude prices on Monday, approaching $80 a barrel.
As shipping companies, including Evergreen, Hapag-Lloyd, Maersk, and Mediterranean Shipping, have announced a temporary halt in sending vessels through the area, concerns grow about the potential long-term impact on the Suez Canal. The disruption of traffic in this vital passage could disturb the flow of oil from countries like Saudi Arabia and Iraq, where BP operates a major oil field.
Conflict in the region has already led to a sharp decrease in the volume of oil and oil products flowing through the Suez Canal this month, to about one-third of the usual flows. This has prompted analysts to consider the possibility of tankers taking longer routes around the Cape of Good Hope in Africa, leading to increased fuel consumption and rising freight rates and insurance premiums.
The situation is creating pressure within the system and could potentially result in increased costs for consumers, according to Viktor Katona, an analyst at Kpler, a firm that tracks commodity shipping.