Will Red Sea attacks by Yemen's Houthis affect oil prices, global trade?

Yemen’s Houthi rebels have attacked multiple trade ships in the Red Sea. The Houthis say they have been attacking vessels with links to Israel to protest the military offensive in Gaza. They have also warned against sailing towards the area. But what happened exactly? And will it impact global trade? Let’s take a closer look: What happened? The Houthis are Iranian-backed rebels who swept down from their northern stronghold in Yemen and seized the capital, Sanaa, in 2014, launching a grinding war against a Saudi-led coalition seeking to restore the government. The Houthis have sporadically targeted ships in the region, but the attacks have increased since the start of the Israel-Hamas war. They have used drones and anti-ship missiles to attack vessels and in one case used a helicopter to seize an Israeli-owned ship and its crew. The Houthis said they attacked the MSC Clara and Norwegian-owned Swan Atlantic, were attacked after their crews failed to respond to calls from the group. The Swan Atlantic’s owner said the ship had been struck by an unidentified object but none of the crew was hurt. The MSC Clara is a Panama-flagged vessel, according to LSEG data. Details of the attack on the vessel were not immediately known. Confirming Monday’s attack on the Swan Atlantic, US officials told Reuters multiple projectiles had been launched from Houthi-controlled territory in Yemen. All the ship’s system were operating normally although the water tank had been damaged in the attack, said Oystein Elgan, chief executive of owner Inventor Chemical Tankers.

Inventor Chemical Tankers had no Israeli ties, Elgan said.

The vessel’s operator, Uni-Tankers, said the attack had caused a small fire which the crew brought under control, and that the ship, carrying vegetable oils, continued to Reunion Island. A British maritime authority said it had received a report of a vessel that “experienced an explosion” on its port side in an attack 24 nautical miles north west of Yemen’s Mokha port. [caption id=“attachment_13518632” align=“alignnone” width=“640”] The Houthi movement claims that its missile and drone assaults on ships in the Red Sea are a reaction to Israel’s invasion of the Gaza Strip Image Courtesy Reuters[/caption] The vessel and crew were reported safe, it said in an advisory. The incident described by the UKMTO advisory was similar to those of the attack on the Swan Atlantic. The United Kingdom Maritime Trade Operations (UKMTO) authority said in a separate advisory it had received a report of a vessel 24 nautical miles southeast of Mokha as being approached by a craft with several armed personnel onboard. Warning shots were fired from the vessel and the craft with the armed personnel on board changed course, the advisory said. The UKMTO authority said in other advisories it had received reports of an incident 63 nautical miles northwest of Djibouti and another incident in the vicinity of the Bab Al Mandab strait, 30 nautical miles south of the port Mokha. As per Al Jazeera, the Houthis in November said they had captured the cargo ship Galaxy leader. While they claimed the ship was owned by Israel, Tel Aviv called it a British-owned Japanese-operated vessel that was headed for India. Why is the Red Sea important? The Suez Canal shipping route, which leads to the Red Sea, is a vital waterway for global trade, used to transport energy and other goods between Europe and Asia, and elsewhere.

The route saves on time and expense by avoiding having to navigate around the entire Africa continent.

The Red Sea has the Suez Canal at its northern end and the narrow Bab el-Mandeb Strait at the southern end leading into the Gulf of Aden. It’s a busy waterway with ships traversing the Suez Canal to bring goods between Asia and Europe. A huge amount of Europe’s energy supplies, like oil and diesel fuel, come through that waterway, said John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, which represents 80 per cent of the world’s commercial fleet. So do food products like palm oil and grain and anything else brought over on container ships, which is most of the world’s manufactured products. As per Al Jazeera, around 40 per cent of trade passes through the strait. How will it impact global trade? The attacks have caused concerns about the impact on the passage of oil, grain and other goods on what is an important global trade route, and have pushed up the cost of insuring and shipping goods through the Red Sea. As per Al Jazeera, shipping insurance premiums have already risen tens of thousands of dollars per day. Soon after the latest attacks, London’s insurance market widened the area in the Red Sea it deems as high risk. Insurance costs have doubled for shippers moving through the Red Sea, which can add hundreds of thousands of dollars to a journey for the most expensive ships, said David Osler, insurance editor for Lloyd’s List Intelligence, which provides analysis for the global maritime industry.

For Israeli ship owners, they have gone up even more — by 250 per cent — and some insurers won’t cover them at all, he said.

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While shippers are applying a so-called war risk charge of $50 to $100 per container to customers bringing over everything from grain to oil to things you buy off Amazon, that’s a low enough fee that it should not drive up prices for consumers, he said. Osler expects insurance costs to keep rising but said the situation would have to get a lot worse — such as the loss of several ships — to raise prices considerably and make some ship owners rethink moving through the region. “At the moment, it’s just an inconvenience that the system can handle,” he said. “Nobody likes to be paying hundreds of thousands of dollars more, but you can live with it if you have to.” [caption id=“attachment_13477502” align=“alignnone” width=“640”] Yemen’s Houthis seized a ship in the Red Sea off the coast of Yemen after threatening to seize all vessels owned by Israeli companies. AP[/caption] This in turn has contributed to a spike in oil prices. BBC noted that oil prices on the international benchmark Brent have already risen 2.6 per cent on Monday The outlet quoted Gregory Brew, an oil historian and analyst at Eurasia Group, as saying, “Right now it’s unclear how significant the impact will be.” “Though if more shipping companies divert their traffic, and if the disruption lasts more than a week or two, prices are likely to climb further.” “Consumer goods will face the largest impact, though current disruptions are occurring during the off-peak shipping season,” added Chris Rogers from S&P Global Market Intelligence. Peter Sand, chief analyst at freight rate data company Xeneta, said there is “definitely a price to pay for a situation like this”. Al Jazeera quoted Colby Connelly, a senior analyst at Energy Intelligence, as saying the attacks have had a “fairly limited” but “not intangible” affect. “As these attacks have gone on, markets have taken more and more notice, so crude prices did end the week higher than they’ve been for the last couple of days or so, especially as these attacks don’t look like they’re going to stop until there’s a stronger effort to actually stop them,” Connelly said. Paul Sullivan, a non-resident senior fellow at the Atlantic Council’s Global Energy Center, told Al Jazeera, “If the Bab el-Mandeb is constrained to oil traffic due to tensions in the region there is a good chance the price of oil to some places will go up due to a crisis and war premium on insurance and the products themselves,” said “Given the present circumstance, this is doubtful, but in the increased tensions in the region just about anything is possible. If it gets bad enough that all sorts of cargoes will be redirected around Africa, this could reconfigure many cargo contracts, including of oil and liquefied natural gas (LNG). And prices will have upward pressures. The softening of overall oil prices may mitigate that, but not for long,” he added. BBC quoted oil giant BP saying it would ‘pause’ oil shipments through the Red Sea. BP blamed the “deteriorating security situation” and said it would keep the “precautionary pause under ongoing review”. Copenhagen-based Maersk said recent attacks on commercial vessels in the southern Red Sea “are alarming and pose a significant threat to the safety and security of seafarers.” It noted a missile was fired at but missed one of its container ships traveling from Oman to Saudi Arabia on Thursday. “We have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” the company said in statement Friday, referring to the narrow waterway that separates Yemen from East Africa and leads north to the Red Sea.

The company says it’s monitoring the security situation and is working to minimise the effect on customers.

Shipper Hapag-Lloyd, whose vessel was attacked Friday, said it was pausing its ships through the Red Sea until Monday and “will decide for the period thereafter.” Some Israeli-linked vessels have apparently started taking the longer route around Africa and the Cape of Good Hope, said Noam Raydan, senior fellow at the Washington Institute for Near East Policy. That lengthens the trip from around 19 days to 31 days depending on vessel speed, increasing costs and adding delays, she said. Taiwan’s Yang Ming Marine Transport Corporation said it would divert any of its ships sailing through the Red Sea or Gulf of Aden via the Cape of Good Hope for the next two weeks. Norway-based oil tanker group Frontline said its vessels would also start avoiding passages through the Red Sea and the Gulf of Aden. “War risk insurance premiums are on the rise naturally, but as vessels gets re-routed around Africa shipping supply will be tighter as cargoes travel longer. That would put rates under a strong upwards pressure,” CEO Lars Barstad told Reuters. The announcement followed decisions by two major freight firms including MSC, the world’s biggest container shipping line, to avoid the Suez Canal in response to the attacks by Houthi forces, which control most of Yemen, a poor Arab state. [caption id=“attachment_13477512” align=“alignnone” width=“640”] This satellite image provided by Maxar Technologies shows the Galaxy Leader ship anchored offshore of As Salif, Yemen, on Tuesday, Nov. 28, 2023. A support tender vessel is positioned nearby. The ship was captured by Houthi fighters on Nov. 19. (Satellite image ©2023 Maxar Technologies via AP)[/caption] Maersk, the world’s biggest shipping company, said Friday that it’s told all of its vessels due to pass through a maritime chokepoint in the southern Red Sea to “pause their journey until further notice.” German-based shipper Hapag-Lloyd that was operating a vessel attacked Friday also said it was pausing all its container ship traffic through the Red Sea until Monday. MarineTraffic, a vessel tracking firm, showed plenty of ships still moving through the region. Norway’s Shipowners’ Association said it expected Norwegian and international authorities to come together as soon as possible to secure safe passage for civilian vessels. Norway’s foreign ministry said Oslo was evaluating whether to participate in the proposed US-led maritime coalition. The US has said it is seeking an expanded coalition to protect ships in the Red Sea and to send a signal to the Houthis, who have also fired drones and missiles at Israel since it began its campaign in Gaza in response to the Hamas rampage in southern Israel on 7 October. “The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners and violates international law,” US defence secretary Lloyd Austin said in a statement Monday as per Bloomberg. “This is an international challenge that demands collective action.” The Houthis have pledged to continue their attacks until Israel stops its assault, but said on Saturday that real steps to ease the humanitarian crisis in the Gaza Strip would contribute to “reducing the escalation”. They also said that they were in Oman-mediated talks about its sea “operations”. That was the first indication that the militia group may be willing to de-escalate_._ With inputs from agencies