Attacks on commercial vessels in the Red Sea by Houthi rebels in Yemen have left oil tanker operators facing an unwanted calculation: accept the risks of passing through the danger zone or losing business.
Risks of conflict in the area may even be rising, as a 12-nation coalition led by the United States warned Wednesday that it would “hold malign actors responsible for illegal seizures and attacks.”
Despite the attacks and the risk of more, some oil companies insist that charter ships take this route rather than an African excursion, which could require an extra two weeks at higher costs. Tanker owners “can take it or leave it,” said Henry Curra, head of global research at Braemar, a shipbroking firm in London.
Until now, oil markets have largely ignored the drone and missile attacks. Traders estimate there is enough oil available worldwide to meet any supply problem.
“Oil and gas inventories are relatively healthy in most major demand centers, so there is a sense that disruptions and delays could be overcome,” said Henning Gloystein, head of energy and climate change at Eurasia Group, a political risk firm. Furthermore, as global economic growth has slowed, demand for oil has decreased.
While some oil companies, including BP, say they will stay out of the area, others continue to use the Red Sea, which provides access to European markets through the Suez Canal.
Lars H. Barstad, chief executive of Frontline, a large tanker company in Oslo, said: “If we have the capacity, we will avoid transiting the Red Sea.” But that is not always possible.
A tanker trucking company, Barstad said, is simply a “taxi service” at the beck and call of clients such as major oil companies and trading firms. Once the voyage has begun, the captain or shipowner cannot suddenly decide to go around Africa instead of passing through the Suez Canal without a very compelling reason.
To redirect a ship that is already underway, “it has to be a warlike situation,” he said. “It’s not a war situation right now, although to outsiders it might seem like it.”
Barstad said he thought the chances of one of his ships being attacked by drones or missiles were quite low due to the large number of ships still passing through the area. Furthermore, he said, his company has had no recent history of dealing with Israel, making it one less target for the Houthis, who are allies of Hamas.
He also finds some solace in the coalition’s growing naval presence in the area and having armed guards aboard its ships.
In general, Flows of oil and refined products such as diesel and gasoline through the Suez Canal fell about 40 percent in December compared with October, said Viktor Katona, an analyst at Kpler, a firm that tracks shipping.
The oil industry is gradually adapting to the growing dangers. Some oil tankers are circling Africa. Others are taking shipments to Asia. An increase in U.S. exports of diesel fuel and other refined products is helping Europe offset reduced flows from India and the Middle East.
That fairly mild shift is one of the reasons the Houthi threat has had so little impact on energy prices. The price of Brent crude oil, now around $77 a barrel, is slightly lower than when Hamas fighters stormed Israel on October 7, triggering their war in Gaza. At the same time, European natural gas prices have also fallen substantially.
While the Suez Canal may be important, there are alternatives. Larger tankers have always tended to stay away from the canal due to their size, so the current situation does not represent much change. While the owners of some liquefied natural gas vessels have decided to temporarily keep their vessels out of the Suez Canal, those from Qatar, a key supplier to Europe, have continued to use the Egyptian route, perhaps thinking that the Houthis will not attack a shipowner close to Hamas. As a result, European natural gas prices “have been hit harder by a mild winter so far,” said Laura Page, liquefied natural gas analyst at Kpler.
Shipping industry insiders estimate that Russia, which ships large volumes of oil through the canal, is also likely immune to attacks. “Given Russia’s relations with Iran, it is very unlikely that they will be a target,” said Jonathan Chappell, managing director of land and shipping equities at Evercore ISI, an investment bank in New York.
Above all, what has helped avoid panic is the feeling in the markets that the world has plenty of oil and natural gas.
“The market is not worried about supply risks,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. “It will take a lot to restore a sustained rebound” in oil prices, he added.