Europe “pays” the most for Houthi attacks on the tanker industry, as cargoes of petroleum products, diesel and jet fuel, coming through the Red Sea and the Suez Canal to the “Old Continent” face the biggest problem.
These cargoes are also the most and have to be transported to European ports via the Cape of Good Hope, which means additional costs and time. Several shipping companies (including the major oil company BP) have decided to temporarily avoid the “Gate of Sorrows”, the Bab el-Mandeb Strait. 18 miles wide at its narrowest point, it connects the Red Sea to the Gulf of Aden and the Arabian Sea. It is an important transit passage for oil and oil products flowing in both directions between the Atlantic/Mediterranean basin and the Pacific Ocean. In most cases, avoiding the Bab el-Mandeb straits also means not using the Suez Canal.
Tankers: The profile of the ‘dark’ fleet
About 8.2 million barrels of oil and oil products pass through the Red Sea every day, so a disruption in the region could have major implications for global oil trade. However, the two major oil products that pass through the straits are Russian crude oil that flows south through the Suez Canal to customers in Asia, and middle distillates (diesel and jet fuel) that flow in the other direction from Asia and the Middle East to Europe. There are also intra-regional movements, including intra-Saudi crossings between the east and west coasts of the country.
Russian crude flows, which account for 72% of southbound passages, will likely continue to flow regardless of the security situation in the region, especially when it comes to the so-called “dark fleet.” It is speculated that the Houthis (with or without Iranian assistance) have information about the origin of the ship or its cargo, and thus are unlikely to attack ships carrying Russian crude.
However, the same cannot be said for oil products transported via Suez to European destinations. In order to avoid the risk of attacks these cargoes can take the safer alternative route to reach their destination in Europe by sailing around the Cape of Good Hope incurring significant additional sailing time and cost.
So far, the impact of increased tensions in the Red Sea region on tanker rates is limited since the Bab el-Mandeb Straits can be bypassed. However, ongoing disruptions could lead to changes in trade flows, which in turn will bring about changes in the utilization of individual tanker classes.
Oil traders opting for longer distances around the Cape of Good Hope will utilize the larger LR1 or LR2 tankers over the smaller MRs for product movements. This could significantly increase demand in tonne-miles, with a surcharge on freight rates. However, as has been pointed out, most of the crude oil that passes through the Red Sea is Russian, and these flows are unlikely to be affected by security concerns unless the Straits are completely closed, which is highly unlikely. But if the Houthis “succeed” in hitting a Western ship and causing significant casualties, this could trigger a reaction that would massively escalate the conflict in the region. In that case the tanker market would change dramatically, with rates skyrocketing.
It is recalled that the security of navigation in the region has deteriorated significantly after the Houthi rebels, who are supported, armed and trained by Iran, intensified their campaign against commercial shipping in the Red Sea. The Houthis support Hamas in its fight against Israel and initially only targeted ships linked to Israeli interests. However, their campaign has intensified in recent weeks and more ships have been attacked with no apparent connection to Israel.
This escalation led to the creation of “Operation Prosperity Guardian”, a multinational security initiative that will help protect merchant ships in the Red Sea region from drones and missiles. In addition to the United States, participating countries include the United Kingdom, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles and Spain. But it is still unclear what specific measures are being considered to protect shipping in the Red Sea.
