BP and Evergreen to Avoid Red Sea After Houthi Attacks

Major global maritime cargo operators are avoiding the Red Sea. Two leading global players, MSC (Switzerland) and Maersk (Denmark), the French from CMA CGM, and the Germans from Hapag-Llyod, who in recent days have already announced the suspension of the sea route between the Red Sea and the Suez Canal, have been joined in the last few hours by the shipping company Evergreen, another maritime transport giant based in Taiwan. These “temporary” breaks arose after increased attacks by Houthi groups, who control part of Yemen, on ships transiting through the Gulf of Aden. It is connected to the Red Sea through the Bab-el-Mandeb Strait, located between Djibouti and Yemen.

Constant missile and drone attacks make transit through these waters in the Middle East too risky. For this reason, companies operating container ships have decided to suspend the use of this fastest route between Asia and the Mediterranean – and therefore Europe – due to skyrocketing insurance costs. Since December 18, oil tankers and liquefied gas carriers, such as BP, Equinor, Frontline, Euronav, and Maersk Tankers, have also joined the cargo ships. The news led to a 3% rise in prices for Brent crude oil and almost 10% for gas, in the latter case breaking a long streak of price declines that had lasted since October. This happened on Monday, December 18, while already on Tuesday the price movement seems more modest. Goldman Sachs analysts surveyed by Reuters said there was unlikely to be a significant impact on oil and liquefied natural gas (LNG) prices as ships could be diverted to alternative routes. This basically means a detour along Africa, around the Cape of Good Hope, which leads to an increase in travel time from approximately 20 to 30 days. “According to our estimates,” explains Goldman Sachs, “a hypothetical long-term redirection of all 7 million barrels per day of gross oil flows (to the north and south) will lead to an increase in spot oil prices by $3-4 per barrel compared to long-term prices.”

Authorities running Egypt’s Suez Canal announced over the weekend that since the first Houthi attacks in November, only 55 ships out of 2128 had decided to change course and avoid the canal. However, this figure looks set to rise and will aggravate the problems caused by drought, which severely restricts navigation through the Panama Canal, another important strategic route for international freight transport. The logistical problems associated with more frequent diversions of sea routes must in any case be taken into account.