The Iran-backed Houthi militias first began attacking ships off the coast of Yemen’s Red Sea in the fall, following the outbreak of the Israel-Hamas war.
Aiming to mitigate the threat on shipping, the U.S. and U.K. launched a series of airstrikes against the group last week, with the support of Australia, Bahrain, Canada and the Netherlands.
“For commodity markets, the increased tension poses supply risks, with energy markets most vulnerable,” two commodities strategists for ING bank wrote in a Tuesday analysis.
The crisis has dealt a severe blow to a variety of commodities, including agricultural products that transit through the Red Sea, as well as sugar from standalone regional refineries, per their analysis.
While oil and liquefied natural gas (LNG) supplies have not yet endured “any fundamental impact,” an intensification of the conflict could heighten “the risk of a spillover,” the strategists warned.
About 12 percent of the world’s seaborne oil flows through the Red Sea — both northbound to Europe and southbound to Asia, according to the ING strategists.
In response to the conflict, many companies have recently decided to avoid the region entirely and instead take the much longer route around the Cape of Good Hope at the tip of Southern Africa.
“This obviously means longer voyage times,” the analysts warned, noting that the trip length could cause some oil supply constraints.
“It would also reduce tanker availability and push up rates,” they added.
British oil giant Shell last week suspended all Red Sea shipments, The Wall Street Journal reported, citing anonymous sources familiar with the decision.
The pause occurred amid fears of further escalation following the recent airstrikes, including the risk of oil spills and crew safety concerns, according to the Journal.
“The priority is the welfare of our people and of course protecting our assets,” Shell CEO Wael Sawan said during a Journal event at the World Economic Forum in Davos, Switzerland.
Sawan acknowledged, however, that the disruptions would complicate energy trade and increase prices, due to the “extra couple of weeks” required to transport cargo, the Journal reported.
Chevron, on the other hand, has been “able to maintain” movement in the Red Sea. But CEO Michael Wirth told CNBC on Tuesday that a major Middle East supply disruption could jeopardize both oil prices and flows.
“It’s a very serious situation and seems to be getting worse,” Wirth said on the sidelines of the World Economic Forum.
“So much of the world’s oil flows through that region that were it to be cut off, I think you could see things change very rapidly,” he added.
BP announced that it had suspended its Red Sea shipments last month, while QatarEnergy did the same with its LNG tankers over the weekend, according to Reuters.
The ING analysts expressed concern about LNG, stressing that this commodity’s flow through the Red Sea channel has recently surged.
Since Russia no longer sends pipeline gas to the European Union — a result of Moscow’s war in Ukraine — the bloc now relies more on LNG moving through the Red Sea, the strategists noted.
This situation, in turn, has left Europe “more vulnerable to developments in the LNG market,” they added.
Global oil analysts anticipate an even greater crisis if tensions spread to a key corridor that connects the Persian Gulf and the Gulf of Oman, known as the Strait of Hormuz, CNBC reported.
About 7 million barrels of oil traverse the Red Sea each day, while 18 million barrels move through the Strait of Hormuz, according to CNBC.
The ING analysts offered a similar perspective, noting that although they “believe the risk of this is low, it needs to be monitored.”
They cited a recent event in which Iran seized an oil tanker in the Gulf of Oman as a cause for increased concern.
“Only Saudi Arabia and the UAE have pipeline capacity to avoid the Strait of Hormuz,” the analysts stated.
“There are no alternative routes for the bulk of flows from the Persian Gulf,” they added. “The Strait of Hormuz is the only option.”
