Commercial ships in the Red Sea. Image: GETTY IMAGES.
Oil price fears following attacks in the Red Sea.
Experts have expressed concern that attacks on commercial ships in the Red Sea could lead to a spike in the price of oil and other goods.
Shipments across the route have been temporarily halted by multiple corporations following attacks on their vessels by Houthi militants in Yemen.
Maersk, the number two shipping company in the world, has announced that it will redirect a portion of its fleet to avoid the Cape of Good Hope.
A worldwide naval effort to safeguard ships in the Red Sea route was launched by the US in response to the interruption.
The United Kingdom, Canada, France, Norway, and Spain are among the countries that have joined the security alliance.
United States Defense Secretary Lloyd Austin stated: “The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners, and violates international law.”
Shipments of consumer products, liquefied natural gas, and oil traverse the Red Sea on a regular basis.
Postponing the shipment of crude oil through the vital commerce route, oil behemoth BP announced on Monday. Energy behemoth Shell, an adversary, has been mum over the matter.
Ships may see a two-week wait, according to Institute of Export and International Trade director general Marco Forgiona, who spoke with the BBC’s Today programme.
He went on to say that in addition to the additional time, fuel, and insurance expenses, “and then you’ve got the issue that the ships are in the wrong place, the containers are in the wrong place and you get the potential for congestion at the ports and further delays”
“So the impact of this on global supply chains cannot be overestimated.”
Nearly 15% of products transported into Europe, the Middle East, and North Africa were shipped by sea from Asia and the Gulf, according to S&P Global Market Intelligence. Of that, 21.5% is refined and over 13% is crude oil.
Inflation, a measure of the rate of price increases, can increase in response to a spike in oil prices. The UK’s inflation rate has been declining and is at 4.6%.
At its present level, it is still over twice the Bank of England’s 2% objective; but, new data out on Wednesday will reveal if it has continued to decline. Up until a few months ago, the Bank’s strategy for combating inflation was to raise interest rates.
There have been very few shifts in the oil price recently. After a 1% increase on Monday, prices remained relatively unchanged on Tuesday, with benchmark Brent crude trading at approximately $78 per barrel.
“What is going to be very interesting is if the tankers continue re-route. Obviously yesterday saw BP start to reroute some of their ships around the Cape of Good Hope as well,” said Richard Meade of the maritime journal Lloyd’s List.
“That’s a much more finely balanced market that could have serious implications for the global supply chain.”
The Houthi rebels have stated their allegiance to Hamas and threatened to use drones and rockets on foreign-owned ships as they travel to Israel.
Some companies, such Investor Chemical Tankers, have denied any connection between the MT Swan Atlantic and Israel, which has been at war with Hamas since the bombings on October 7.
A lengthier path across southern Africa, around the Cape of Good Hope, will now be required of ships instead of traversing the Bab al-Mandab Strait.
The ships were waiting to see what kind of security they would receive, according to Sal Mercogliano, a naval historian at Campbell University.
“The most challenging one is dealing with ballistic missiles. The use of this particular weapon against ships is unprecedented, he claimed.
To shoot down this missile type would be an enormous challenge. Not many ships can actually pull that off. Many shipping companies might opt out of that route if that’s the danger the ships are encountering.