Fears of higher oil prices after Red Sea attacks
Attacks on commercial ships in the Red Sea risk pushing up the price of oil and other goods, analysts have warned.
Several firms have paused shipments through the route after vessels were attacked by Houthi rebels in Yemen.
The world’s second largest shipping line, Maersk, said on Tuesday that it would reroute some of its vessels around Africa’s Cape of Good Hope.
The disruption has led the US to launch an international naval operation to protect ships on the Red Sea route.
Countries joining the security action – named Operation Prosperity Guardian – include the UK, Canada, France, Bahrain, Norway and Spain.
The US has also said it would welcome China playing a constructive role in trying to prevent further attacks.
The analysts’ warnings came as the rebels vowed to continue their attacks in the Bab al-Mandeb strait, a vital shipping lane between Asia and Europe.
“Even if America succeeds in mobilising the entire world, our military operations will not stop… no matter the sacrifices it costs us,” said senior Houthi official Mohammed al-Bukhaiti on X, formerly Twitter.
US defence secretary Lloyd Austin held a virtual meeting with ministers from more than 40 countries on Tuesday, and called on more nations to contribute to the security efforts.
“These reckless Houthi attacks are a serious international problem and they demand a firm international response,” he said.
The UK’s Ministry of Defence said the Royal Navy destroyer HMS Diamond would join the new task force, with the security situation “deteriorating”.
The Red Sea is one of the world’s most important routes for oil and liquefied natural gas shipments, as well as for consumer goods. It is bookended by the Bab al-Mandab Strait – also known as the Gate of Tears – in the south near the coast of Yemen and the Suez Canal in the north.
Houthis have declared their backing for Hamas in its war with the Israelis and the rebels based in Yemen said they were targeting vessels which they believe are heading for Israel.
However, some firms, such as Investor Chemical Tankers, whose Swan Atlantic vessel was attacked on Monday, said that its ship had no links to Israel.
Shipping firms have reported vessels coming under attack from drones and missiles.
“The ballistic missiles are really the tough one. This is the first time we’ve ever seen ships hit by this type of weapon,” Sal Mercogliano, a naval historian at Campbell University, told the BBC.
“It’s a very difficult type of missile to shoot down.”
Despite the launch of the international operation to ensure safe passage through the Red Sea, Maersk said it was not clear when it would resume journeys along the route, and would assess things on a case-by-case basis.
It said while it was pleased to hear of efforts to improve security in the area, “at this time it remains difficult to determine” when it would return to the Red Sea route.
Meanwhile, Hapag-Lloyd, a German firm whose Al Jasrah vessel was attacked last Friday, said that while it welcomed the new task force, the company needed 100% assurance the Red Sea was safe for ships to return.
The alternative route, around the Cape of Good Hope, adds about 3,500 nautical miles to the journey.
Hapag-Lloyd’s head of corporate communications Nils Haupt told the BBC: “We go from the eastern Med to Singapore. Normally it takes 13 days through the [Suez] Canal – without using the canal that will be 31 days.”
Attacks on ships have intensified in recent days. Investor Chemical Tankers said its Swan Atlantic tanker was hit by an “unidentified object” on Monday, while Maersk described the situation as “alarming” on Friday after a “near-miss” incident involving Maersk Gibraltar and another attack on a container ship.
Oil giant BP said on Monday that it would temporarily pause all shipments of crude through the route. Rival energy giant Shell has yet to comment.
At the moment, changes to the oil price have been minimal. Prices rose 1% on Monday, but on Tuesday they were little changed with benchmark Brent crude trading at around $78 a barrel.
As petrol is derived from oil, increases in the price of crude usually feed through to higher costs at the pump.
But Simon Williams, the RAC motoring group’s fuel spokesman, said while tankers avoiding the Red Sea had the “potential to push up the oil price, the barrel is still below $80, $15 lower than it was at the end of September”. “Talk of this immediately affecting fuel prices is unhelpful as we are still waiting for retailers to fully pass on the savings from much lower wholesale costs. We don’t want to give them a reason not to continuing cutting their prices, especially at the most expensive time of the year,” he added.
Mr Williams argued current petrol prices at £1.42 should be around 10p cheaper on average. “This means even if the Red Sea situation worsens, there is no reason for the biggest retailers to push up prices as fuel is still overpriced,” he added.
Richard Meade, editor-in-chief of shipping newspaper Lloyd’s List, told BBC Radio 4’s Today programme: “What is going to be very interesting is if the tankers continue to reroute.
“That’s a much more finely balanced market that could have serious implications for the global supply chain.”
But rerouting will affect more than just oil. Mr Meade said 12% of global trade was taken through the Red Sea, which is about $1 trillion worth of goods a year.
“We’ve seen most of the main container carriers – these are the ones that carry finished goods, TVs, electronics, trainers – they have almost exclusively started rerouting,” he said.
Hapag-Lloyd told the BBC that it will have rerouted 25 ships by the end of the year, costing it tens of millions of dollars as the ships were booked before the attacks. However, it said new orders would “probably” see a rise in costs.
“This industry is keeping world trade alive and attacks on merchant shipping are unacceptable,” said Mr Haupt.
BP has paused all oil shipments through the Red Sea
Marco Forgiona, from the Institute of Export and International Trade, told the BBC that rerouting would increase fuel and insurance costs for shipping, “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”.
However, Mr Haupt said that while he expected to see congestion at some ports in a few weeks, “I don’t think it will be as tough as we have seen it during Covid.
“Yes we will see some disruption and we might see delays, but I would not expect this to be a total disruption of the supply chain.”
S&P Global Market Intelligence said that nearly 15% of goods imported into Europe, the Middle East and North Africa were shipped from Asia and the Gulf by sea. That includes 21.5% of refined oil and more than 13% of crude oil.
A rise in oil prices can lead to higher inflation, which measures the pace of price rises. Inflation has been falling in the UK and is currently 4.6%.
New figures out on Wednesday will show whether it has continued to drop but, at the current level, it is still more than twice the Bank of England’s 2% target. The Bank has, until recent months, been raising interest rates to cool inflation.