Oil and gas prices surge as BP stops Red Sea shipments following Houthi attacks

Oil and natural gas prices rose sharply Monday after BP (BP) said it would pause all shipments through the Red Sea because of increased attacks on commercial vessels by Houthi militants from Yemen.

The decision by one of the world’s biggest oil companies follows similar moves by major shipping firms, something analysts have warned could ripple through global supply chains and increase the costs of moving goods.

“In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the company said in a statement. “We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”

Oil posted steep gains on the news. Brent crude, the global benchmark, was up 2.7% at $78.64 a barrel by 11.15 a.m. ET. US oil rose 2.8% to $73.44 a barrel.

The news also affected the natural gas market. Europe’s benchmark prices for the fuel surged 7.7% to above €35.75 ($39.04) per megawatt hour. That’s just a fraction of the all-time high of €320 ($349.24) per megawatt hour seen in August 2022, at the height of the continent’s energy crisis, but still the most concrete sign yet of disruption in commodity markets following the attacks.

Aerial assaults by the Iran-backed Houthis, who support Hamas and the Palestinian people, have become more frequent since the outbreak of the Israel-Hamas war. The militants have claimed the attacks as revenge against Israel. The United States and its allies are now considering whether to expand an existing maritime taskforce in the Red Sea to protect commercial vessels.

Shipping firms pause Red Sea transit

The world’s biggest container shipping companies have paused transit through one of the world’s trade arteries, which experts say could snarl supply chains and drive up freight costs.

MSC, Maersk, CMA CGM and Hapag-Lloyd all said in recent days that they would avoid the Suez Canal over safety concerns. The canal connects the Red Sea to the Mediterranean Sea, which both bound Israel. Evergreen Group’s container shipping arm joined that list Monday, saying in a statement that it would suspend its Israel import and export service “with immediate effect until further notice.”

In a further statement shared with CNN, the firm said its container ships would suspend all navigation through the Red Sea.

On Friday, Houthi rebels claimed responsibility for attacks on two MSC vessels.

“The situation is further deteriorating and concern of safety is increasing,” French group CMA CGM said in a statement Saturday as it announced that ships due to pass through the Red Sea had been instructed to pause their journeys “until further notice.”

“CMA CGM is taking all necessary steps to preserve its transportation services for its customers,” the company added.

But analysts have cautioned that the disruption to a key trade route between East and West could have knock-on effects on supply chains.

“Global freight can expect to see rate increases, rerouting and longer transit times,” said Judah Levine, head of research at logistics company Freightos.

Already, some ships are being rerouted via the Cape of Good Hope in Africa, adding up to three weeks to journey times and increasing fuel costs.

“This means that one week of meaningful capacity rerouting could have ripple effects for several months ahead, after a lag of a few weeks,” UBS analysts wrote in a note Sunday, noting that around 30% of global container trade passes through the Suez Canal.

The analysts said that, if the disruptions persisted, shippers might be able to “lock in higher-than-expected rates” as they renegotiate long-term contacts in the coming days and weeks.

Impact on inflation?

More than 80% of global goods trade is moved by sea, according to the United Nations Conference on Trade and Development. And seaborne traffic via the crucial Panama Canal is already restricted because of a severe drought.

Supply chain snafus and a surge in shipping costs during the Covid-19 pandemic were key drivers of inflation, as companies passed on the increased cost of moving their goods to consumers.

The latest disruption could hit consumer goods companies in Europe and North America. “Consumer goods will face the largest impact, though current disruptions are occurring during the off-peak shipping season,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.

It’s too early to tell, however, whether there will be any sustained rise in prices and a lot depends on how long the disruption lasts, said Rico Luman, a senior economist at Dutch bank ING.

“A big difference compared to the pandemic era is that the demand-supply balance is much more relaxed,” he told CNN. “Container shipping has excess capacity currently, which will probably prevent rates from spiking again.”

Levine of Freightos echoed this view. “Shippers could expect longer lead times due to longer voyages, but operations should continue reasonably well.”

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