LONDON – Shipping in the Red Sea is grinding to a halt, with oil tankers idling and container vessels rerouting around Africa as violence linked to the Israel-Hamas war threatens to undermine the global economy.

Recent attacks on ships in the major shipping route have raised the spectre of another bout of disruption to international commerce, following the upheaval of the Covid-19 pandemic, and prompted a United States-led international force to patrol waters near Yemen.

US Defence Secretary Lloyd Austin on Dec 19 announced the creation of a multinational operation to safeguard commerce in the Red Sea, following a series of missile and drone attacks on commercial ships by Yemen’s Iran-aligned Houthis.

He said participating countries include the United Kingdom, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles and Spain. The group will conduct joint patrols in the southern Red Sea and the Gulf of Aden.

The Red Sea is linked to the Mediterranean by the Suez Canal, which is the shortest shipping route between Europe and Asia. About 12 per cent of world shipping traffic transits the canal.

Major shippers including Hapag-Lloyd, Mediterranean Shipping Company (MSC) and A.P. Moller-Maersk, oil major BP and oil tanker group Frontline said they will be avoiding the Red Sea route and are rerouting via South Africa’s Cape of Good Hope. CMA CGM said it was pausing all container shipments through the Red Sea.

Forty-six container vessels have diverted around the southern tip of Africa rather than using the Red Sea, and a further 78 are awaiting instructions, said Mr Ryan Petersen, founder of logistics firm Flexport, on X on Dec 19.

But many ships are still plying the waterway. Several ships under way have armed guards on board, London Stock Exchange Group (LSEG) data showed.

At least 11 container ships that passed through the Suez and were approaching Yemen are now anchored in the Red Sea between Sudan and Saudi Arabia, LSEG ship-tracking data showed. The vessels are carrying consumer goods and grains bound for countries including Singapore, Malaysia and the United Arab Emirates.

Four MSC container ships in the Red Sea have had their transponders turned off since Dec 17, the data showed, likely to avoid detection.

Already, rates to ship goods in containers from Asia to the Mediterranean are rising. According to Freightos.com, a booking and payments platform for international freight, the rate for that route through the Suez as at Dec 17 was US$2,414 (S$3,216) for a 12m container, up 62 per cent since the end of November.

“The situation does mean an increase to shipping costs and some short-term delivery delays,” said Mr Henning Gloystein, a director at researcher Eurasia Group. “All these costs will be directly passed on to consumers.” 

The Suez Canal has been a major route for the global liquefied natural gas (LNG) trade over the past two years, bolstered by Europe’s appetite for the super-chilled fuel as the main replacement for piped Russian natural gas.

Its importance has amplified in 2023 as Asia-bound cargoes take longer routes amid the congestion on the Panama Canal. LNG vessels have also been rerouting, taking the longer and more expensive route via the Cape of Good Hope.

European natural gas prices surged by as much as 13 per cent amid the most concrete sign yet of disruption to energy flows since the start of the war in Gaza. Global benchmark Brent crude traded above US$78 a barrel on Dec 19, after rising as much as 3.9 per cent the previous day.

Trade threat

The Iran-backed Houthis, who say they are supporting Palestinians under siege by Israel in the Gaza Strip, have waded into the Israel-Hamas conflict by attacking vessels in vital shipping lanes and even firing drones and missiles at Israel, more than 1,600km from the Yemeni capital Sanaa. Houthis attacked two commercial shipping vessels in the southern Red Sea on Dec 18.

Industry sources say the impact on global trade will depend on how long the crisis persists, but insurance premiums and longer routes would be immediate burdens.

The London-based Joint War Committee, which advises Mr Austin’s marine insurance underwriters on risk, on Dec 18 expanded the portion of the Red Sea that it considers to be part of the world’s riskiest waters. That means the amount of time that ships need cover against war risks will increase. The cost of such cover has surged almost tenfold since the attacks first began.

The attacks are happening at a time when the world’s other vital ocean-to-ocean waterway – the Panama Canal – is being severely restricted by drought. They also come as central banks remain wary about inflation risks.

“Rising uncertainty in the Suez channel, combined with the global economy rebounding because of easier financial conditions, could put upward pressure on goods inflation over the coming months,” said Apollo Global Management chief economist Torsten Slok.

The cost of moving crude from the Middle East to Europe on a Suezmax medium-sized oil tanker has risen 25 per cent in a week, said Vortexa senior freight analyst Ioannis Papadimitriou on Dec 19.

But Goldman Sachs said the disruption to energy flows in the Red Sea is unlikely to have large effects on crude and LNG prices as vessels can be redirected.

“We do estimate that a hypothetical prolonged redirection of all 7 million barrels per day of gross (north-bound and south-bound) oil flows would raise spot crude prices relative to long-dated prices by US$3 to US$4 per barrel,” the investment bank said.

An Asian buyer of naphtha, a petrochemical feedstock imported from Europe, said its vessels were still using the Red Sea route as it would take another seven to 14 days to reroute via the Cape of Good Hope. BLOOMBERG, REUTERS