Energy markets are bracing as attacks and disruptions carried out by Yemen’s Houthi rebels in the Red Sea are expected to send oil prices upward, with Goldman Sachs warning that prices could even double.
The Houthis have been enacting what amounts to a blockade of shipping through the Red Sea and conducting ongoing attacks on cargos in response to Israel’s war against Hamas. As the hostilities in the Middle East continue to rise, the Yemen-based militants have been ramping up their attacks on vessels that could be linked to Israel in what they claim is a show of solidarity with Palestinians.
Goldman Sachs’ head of oil research, Daan Struyven, said in an interview on CNBC that the world could soon be paying the price for their actions. After noting that “the Red Sea is a transit route and a prolonged disruption there, oil can be three or four dollars higher,” he added: “However if you have a disruption in the Strait of Hormuz for a month, [oil] prices would rise by 20 per cent and could even eventually double if the disruption there lasted for longer.”
Although he said that he believes the situation may be “highly unlikely,” numerous business and political analysts have voiced concerns that the situation is headed in a bad direction.
The Red Sea is considered one of the most crucial routes for oil and liquefied natural gas shipments, along with consumer goods, in the world. It is demarcated by the Bab al-Mandeb Strait to the south near the Yemeni coast and the Suez Canal in the north.
Although the rebels claim that they are targeting vessels that are linked in some way to Israel, whether they are headed there or owned by Israeli companies, some firms have said their ships were unfairly targeted. For example, Investor Chemical Tankers, whose Swan Atlantic vessel came under attack in December, reported that they have no links to Israel.
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Rebels continue to attack commercial ships
So far, rebels have attacked Red Sea commercial shipping vessels dozens of times using varied approaches including helicopters, fast boats, drones and missiles. A few minor oil price spikes were seen last month in response, but so far, the volatility has been relatively limited given the softness of the wider market.
However, the situation appears to be getting worse, and several major shippers have already sworn off using Red Sea and Suez Canal routes. Oil giant BP issued a temporary pause on shipments of crude through the area.
Maersk, the world’s second-biggest shipping line, has said it will be avoiding the area altogether after one of their vessels came under attack. The German shipper Hapag-Lloyd, who also experienced an attack, said it won’t return to the area until it receives 100 percent assurance that the sea will be safe.
Niles Haupt, the line’s head of corporate communications, 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."
Many companies have been diverting their vessels from the Red Sea and sending them around the southern tip of Africa and the Cape of Good Hope instead. This can add as many as 6,000 nautical miles to a journey for cargo headed from Asia to North America or Europe, delaying delivery times by as long as a month and sending shipping costs through the roof.
According to S&P Global Market Intelligence, around 15 percent of the goods that are imported into the Middle East, Europe and North Africa are shipped from Asia and the Gulf by sea, and this includes nearly 22 percent of refined oil, more than 13 percent of crude oil. If oil prices climb, it may well worsen inflation, which is already high in much of the world.
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