Oil Transport at Risk in the Red Sea

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--With the U.S. military focusing its efforts on Iranian deterrence, a maritime risk advisory group is warning that global trade lanes, particularly for oil, may be impacted by hostilities in and around the Red Sea.

Dryad Global said there are currently no U.S. Navy warships patrolling the waters near Yemen, adding this could lead to an increase in global economic instability due to the impact on shipping lanes.

"Global trade, especially the transportation of oil, may be impacted by the disruption, which would to increased insurance costs, ship rerouting, or temporary closures," Dryad warned on Tuesday.

The Iranian-backed Houthi rebel group started attacks in shipping lanes near Yemen shortly after war broke out between Israel and Iran-backed Hamas in October.

A vessel laden with crude oil and left abandoned after an attack from the Houthi rebel group is reportedly ablaze in the Red Sea. On Tuesday, meanwhile, the United Kingdom Maritime Organization warned that a vessel was monitoring a drone accompanied by three small crafts about 25 nautical miles off the western coast of Yemen.

Dryad, for its part, added that U.S. military forces have redeployed to the Mediterranean Sea, the Persian Gulf and the northern parts of the Indian Ocean in anticipation of direct military action from Iran. The region is on edge in anticipation of an Iranian response to the alleged Israeli assassination of a senior official from the Palestinian group on Iranian soil.

"The U.S. seems to have shifted its strategic focus to regional powers or coalitions, reducing direct military involvement as part of a broader foreign policy adjustment," Dryad stated.

With other regional powers working at times to fill the void, Dryad said it was concerned about a broad-based strategic alignment.

"A global reaction might lead to coalitions or other nations stepping up their naval operations to defend their interests or stop less stable states from taking advantage of them," the advisory read. "Humanitarian crises and elevated environmental risks could result from increased instability."

Waters off the coast of Yemen have in the past accounted for about 12% of the global waterborne oil trade and around 8% of the shipments in liquefied natural gas. Norwegian energy company Equinor (NYSE:EQNR) (Stavanger, Norway) and supermajor BP (NYSE:BP) (London, England) are avoiding the Red Sea, however, while shipping giant Maersk (Copenhagen, Denmark) said it would reroute around the Cape of Good Hope off the coast of South Africa for the foreseeable future.

Avoiding the Red Sea and surrounding waters can add as much as 35 days to a typical voyage. The U.S. Energy Information Administration (EIA), the statistical arm of the Energy Department, estimated that rerouting around South Africa could add as much as US$30,000 or so per day in fuel costs alone.

"In addition to adding to fuel costs, a longer voyage requires more ships to maintain the same delivery schedule, and fewer available ships contribute to higher tanker rates and costs," the EIA added.

The price for Brent crude oil, the global benchmark, hit US$80 per barrel on Monday after three straight days in the black amid reports of production outages in Libya and the potential for conflict across the greater Middle East. Oil prices, however, had slipped by Tuesday amid ongoing concerns about the health of the global economy.

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