The recent decision by BP to halt all shipments through the Red Sea due to increased attacks on commercial vessels by Houthi militants from Yemen has caused a significant surge in oil and natural gas prices. This move follows similar actions by major shipping firms, potentially disrupting global supply chains and elevating the costs of transporting goods.
The pause in Red Sea transit impacted oil prices, with Brent crude rising by 2.7% to $78.64 a barrel and US oil increasing by 2.8% to $73.44 a barrel. The natural gas market also felt the effects, with Europe’s benchmark prices surging by 7.7% to over €35.75 per megawatt hour, reflecting disruption in commodity markets following these attacks.
Aerial assaults by Houthi militants, backing Hamas and Palestinians, have heightened since the Israel-Hamas war outbreak. As a result, major container shipping companies like MSC, Maersk, CMA CGM, and Hapag-Lloyd have halted transit through the Red Sea, impacting crucial trade routes and potentially causing delays, increased freight costs, and rerouting of shipments.
This disruption in trade routes, especially the Suez Canal connecting the Red Sea to the Mediterranean Sea, has raised concerns about supply chain impacts. Rerouting ships via the Cape of Good Hope in Africa could extend journey times by up to three weeks, resulting in increased fuel costs and potential rate hikes for global freight.
With over 80% of global goods trade moved by sea and the Panama Canal already facing restrictions due to drought, disruptions like these have historically driven inflation. Consumer goods companies in Europe and North America might bear the brunt of this impact, although the full effect depends on the duration of the disruption. Experts suggest that while there may be longer lead times and some operational challenges, the current excess capacity in container shipping might prevent drastic rate increases, unlike during the pandemic era.
Overall, the pause in Red Sea shipments and the subsequent impact on global trade routes have sparked concerns about potential supply chain disruptions and their influence on inflation, particularly for consumer goods.