Oil prices briefly jumped above $80 (€73) a barrel for the first time in 2024 on Friday after the US and UK struck targets following more than 25 attacks by Houthi militants on the globally-critical Red Sea shipping route since November.
Energy traders warned that higher prices could be ahead as the conflict stemming from the Israel-Hamas war threatens to escalate in the wider region and cause further disruption to supply chains.
The International Association of Independent Tanker Owners (Intertanko), which represents almost 70 per cent of all internationally-traded oil, gas and chemical tankers, warned members on Friday to “stay well away” from the Bab al-Mandab strait for the first time. Houthi leader Abdul-Malik Badr al-Din al-Houthi had warned of increased attacks, saying in a video posted on X that they would be more significant than those “recently carried out”, when multiple drones and missiles targeted US and UK warships.
Some of the world’s largest tanker operators confirmed they would avoid the region in a move that could add significant time and costs to shipments from the Middle East to Europe as vessels reroute around Africa.
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While as much as 91 per cent of container ship traffic was already avoiding sailing past Yemen, oil shippers had until now been more willing to use the route, with analysts calculating tanker journeys had fallen by less than a fifth before Friday.
The International Association of Independent Tanker Owners said the “threat period” for shipping could last for several days, if not longer.
Brent crude, the international oil benchmark, rose as much as 4.3 per cent to $80.75 a barrel, the highest level so far in 2024, before easing slightly.
The diversion of container ships has already caused issues for European industry, with Tesla confirming on Friday it had paused operations at its electric car manufacturing plant in Germany due to delays in receiving parts.
Some manufacturers are resorting to air freight for critical parts. Fears of a prolonged disruption have pushed container shipping costs to the highest level outside the coronavirus pandemic. The average cost of moving a 20ft container from Shanghai to Rotterdam rose 8 per cent this week and has more than doubled since December to reach $3,103.
Companies have emphasised, however, that while painful the jump in shipping costs is nowhere near as bad as during the pandemic when supply chain disruptions drove them as high as $20,000 per container on the China to Europe route, helping stoke inflation globally.
Bob McNally, founder of Rapidan Energy and a former adviser to the George W Bush White House, said that he calculated oil prices could jump by about 15 per cent if the conflict showed further signs of spreading. “A possible escalation between Israel and Iran’s main proxy Hizbullah in Lebanon is a still underappreciated Iran contagion risk,” Mr McNally said.
UK prime minister Rishi Sunak said the strikes, involving US missiles and four UK Typhoon fighters, were “necessary and proportionate” as the Houthi attacks had risked the lives of commercial seamen, targeted US and UK warships, and driven up commodity prices.– Copyright The Financial Times Limited 2024
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