The recent attacks on commercial ships in the Red Sea have raised concerns about the potential impact on oil prices and global supply chains. As several firms halt shipments through the route, analysts warn that this disruption could lead to higher oil prices and affect the flow of goods. The world’s second-largest shipping line, Maersk, has already announced plans to reroute some of its vessels around the Cape of Good Hope, while other companies such as BP have temporarily paused all shipments of crude through the Red Sea.
These attacks, carried out by Houthi rebels in Yemen, have prompted the United States to launch an international naval operation to protect ships in the Red Sea route. Joining this security group are countries like the UK, Canada, France, Bahrain, Norway, and Spain. US defense secretary Lloyd Austin emphasized that the Houthi attacks pose a threat to the free flow of commerce, endanger innocent mariners, and violate international law.
The Red Sea is a crucial route for oil and liquefied natural gas (LNG) shipments, as well as for consumer goods. BP’s decision to temporarily halt crude shipments through this key trade route highlights the significant impact these attacks can have on global supply chains. Marco Forgiona, the director general at the Institute of Export and International Trade, warned about the repercussions of rerouting ships around the Cape of Good Hope. He explained that this alternative route could lead to delays of about two weeks, along with added costs for fuel and insurance. Furthermore, the rerouted ships and containers may cause congestion at ports and further delays, exacerbating the impact on global supply chains.
According to S&P Global Market Intelligence, nearly 15% of goods imported into Europe, the Middle East, and North Africa are shipped from Asia and the Gulf by sea. This includes 21.5% of refined oil and over 13% of crude oil. Any increase in oil prices can result in higher inflation rates, which are already a concern in the UK, where inflation currently stands at 4.6%. The Bank of England’s target inflation rate is 2%, and the central bank has previously raised interest rates to control inflation. Reducing inflation is crucial to maintaining economic stability.
Despite the recent attacks, oil prices have experienced minimal changes so far. On Monday, prices rose by 1%, but on Tuesday, they remained relatively stable, with benchmark Brent crude trading at around $78 a barrel. However, Richard Meade, editor-in-chief of shipping newspaper Lloyd’s List, believes that if more tankers continue to reroute, the market could become more finely balanced, potentially leading to serious implications for the global supply chain.
The involvement of Houthi rebels, who have expressed support for Hamas, adds another dimension to the situation. They have declared their intention to target ships traveling to Israel, using drones and rockets against foreign-owned vessels. However, some firms have clarified that their ships have no links to Israel. Regardless, the decision to reroute ships around the Cape of Good Hope means a longer and less efficient route, putting additional strain on shipping companies and potentially impacting delivery schedules.
Naval historian Sal Mercogliano highlights the security concerns faced by shipping companies. The use of ballistic missiles by the rebels presents a unique challenge, as shooting down such missiles is extremely difficult and requires specialized capabilities. Shipping companies may choose to avoid routes with this threat, which would further disrupt global supply chains.
In conclusion, the attacks on commercial ships in the Red Sea pose a significant risk to oil prices and global supply chains. The decision of major shipping companies like Maersk and BP to reroute vessels and pause shipments reflects the potential impact of these attacks. Delays, increased costs, and congestion at ports are likely consequences of rerouted ships. The dependence on the Red Sea for oil and LNG shipments, as well as consumer goods, underscores the importance of safeguarding this vital trade route. Furthermore, the involvement of Houthi rebels and their targeting of ships traveling to Israel introduce additional complexities. The international naval operation initiated by the United States, along with the participation of other countries, aims to protect ships in the Red Sea route and maintain the free flow of commerce. The situation in the Red Sea requires continuous monitoring and swift, decisive action to mitigate the potential risks to oil prices and global supply chains.
