Analysts have warned that attacks on commercial ships in the Red Sea risk raising the price of oil and other commodities.
Several companies have halted supplies through the channel after vessels were assaulted in Yemen by Houthi rebels.
Maersk, the world’s second largest shipping company, announced on Tuesday that some of its vessels would be rerouted around Africa’s Cape of Good Hope.
As a result of the disruption, the United States has launched a multinational naval operation to defend ships traveling the Red Sea route.
The United Kingdom, Canada, France, Bahrain, Norway, and Spain have all joined the security alliance.
On Tuesday, US Defense Secretary Lloyd Austin held a virtual meeting with ministers from more than 40 countries, urging additional countries to assist to efforts to keep cargo secure in the Red Sea.
“These reckless Houthi attacks are a serious international problem and they demand a firm international response,” he told reporters.
The Red Sea is one of the most major shipping routes for oil and liquefied natural gas, as well as consumer goods.
It is bounded in the south by the Bab al-Mandab Strait, commonly known as the Gate of Tears, and in the north by the Suez Canal.
The Houthis have stated that they support Hamas in its conflict with the Israelis and that the Yemeni rebels are aiming their weapons at ships they think are bound for Israel.
However, several companies, like Investor Chemical Tankers, claimed that their ship had no connections to Israel. On Monday, their MT Swan Atlantic tanker was assaulted.
Maersk stated that it was unclear when it will start making trips along the route, even after an international naval operation was launched to guarantee safe passage across the Red Sea.
According to Maersk, “a case-by-case assessment will take place to determine whether adjustments need to be made – including diversions via the Cape of Good Hope and further contingency measures”.
“It is encouraging to see international governments responding quickly with coordinated efforts on international maritime security and capacity building in the region to present a solution permitting a return to transit the Red Sea and Gulf of Aden area as well as the Suez Canal in the near future,” the statement continued.
“However, at this time it remains difficult to determine exactly when this will be.”
The detour around the Cape of Good Hope extends the journey by approximately 3,500 nautical miles and requires an additional 10 days.
The number of ship attacks has increased recently. While Maersk called the situation “alarming” on Friday following a “near-miss” event, the owner of the tanker Swan Atlantic reported that the ship was struck by a “unidentified object” on Monday.
The major oil company BP announced on Monday that it will momentarily stop shipping any crude across the vital trade route. Shell, a rival oil behemoth, has not yet provided a statement on the matter.
There haven’t been many changes to the price of oil recently. Monday saw a 1% increase in prices, while Tuesday saw little movement as benchmark Brent crude continued to trade at roughly $78 per barrel.
Since oil is the raw material used to make gasoline, rises in the price of crude oil typically translate into higher gas prices.
The chief editor of the shipping journal Lloyd’s List, Richard Meade, stated on BBC Radio 4’s Today program: “It will be fascinating to see if the tankers continue to reroute, as BP started to do yesterday with some of their ships.”
“That’s a much more finely balanced market that could have serious implications for the global supply chain.”
Rerouting, however, has effects beyond oil. According to Mr. Meade of Lloyd’s List, the Red Sea handles $1 trillion worth of products annually, or 12% of all global trade.
“We’ve seen most of the main container carriers – these are the ones that carry finished goods, TVs, electronics, trainers – they have almost exclusively started rerouting,” he stated.
Rerouting would result in higher fuel and insurance costs for shipping, according to Marco Forgiona, director general of the Institute of Export and International Trade, who also told the BBC that there would be a chance of port congestion and additional delays because the ships and containers would be in the wrong location.
Nearly 15% of products imported into Europe, the Middle East, and North Africa, according to S&P Global Market Intelligence, were transported by sea from Asia and the Gulf. More than 13% of crude oil and 21.5% of refined oil are included in that.
Higher inflation, which gauges the rate of price increases, may result from rising oil prices. The UK’s inflation rate has been declining.
Even at this current level, it is still higher than twice the Bank of England’s 2% target. New data released on Wednesday will reveal if it has continued to decline. Up until recently, the Bank had been increasing interest rates in an effort to reduce inflation.
The Houthi rebels have started employing drones and rockets to target foreign-owned ships that are en route to Israel.
According to Campbell University naval historian Sal Mercogliano, ships were holding off to see what degree of security they would receive, as reported by the BBC.
Even at this current level, it is still higher than twice the Bank of England’s 2% target. New data released on Wednesday will reveal if it has continued to decline. Up until recently, the Bank had been increasing interest rates in an effort to reduce inflation.
The Houthi rebels have started employing drones and rockets to target foreign-owned ships that are en route to Israel.
According to Campbell University naval historian Sal Mercogliano, ships were holding off to see what degree of security they would receive, as reported by the BBC.
“It’s a very difficult type of missile to shoot down. And very few ships have that capability to do that. And if that’s the threat that the ships are facing, many shipping companies may decide not to go that way.”
