BP became the first oil company to halt shipments in the Red Sea, which cited a deteriorating security scenario due to increasing attacks by Yemeni rebels on ships travelling a route that accounts for 10% of all international traffic.
The global standard, Brent crude, ended the day 1.8% higher at $77.95 per barrel. West Texas Intermediate, the US counterpart, ended the day 1.5% higher at $72.47. Due to worries over the shipment of LNG, the benchmark gas price in the UK increased by up to 14%, while the price in its European counterpart increased by almost the same percentage.
The UK oil group’s decision coincides with the Houthi rebels, who are backed by Iran, stepping up their attempt to stop ships travelling via the Suez Canal after the Israel-Hamas conflict broke out. In a statement on Monday, BP stated that it will keep the precautionary halt under continuous review, subject to conditions as they evolve in the region.
Gains from last week were extended by rising shares in several of the largest shipping companies, as investors anticipated interruptions would lead to higher freight rates and higher profits.
AP Hapag-Lloyd, the world’s fifth-largest container shipping company, increased by nearly 8%, while Møller-Maersk, the company that runs the second-largest fleet in the world, increased by 3.1%. Due to the possibility of threats, both firms halted shipping via the Red Sea last week.
Extended routes around Africa may thus cause a lag in the transportation of consumer products, commodities, and oil from Europe to Asia. In addition, traders will be keenly observing whether other businesses decide to follow BP’s strategy.
One of the largest independent oil and LNG traders in the world, privately held Trafigura, stated it was keeping an eye on the situation. Per Henning Gloystein, director of consulting Eurasia Group, if oil exports from the Middle East to Europe circumvented the Red Sea and went around Africa, the price of oil might rise by at least $10 to $15 for Brent crude. He said that prices for TTF, the primary benchmark for gas trade in Europe, might increase by 25–30%.
Gloystein added that BP is the first international portfolio major to stop shipments. It will be important to observe how robust the response of the US as well as European naval task forces is now. Ship owners have demanded security on waterways.
The US, which was the target of strikes on a battleship earlier this month, is getting ready to declare the formation of a larger global task force to safeguard ships in the Red Sea. There is a great deal of push and pull, according to Gloystein. While some in the US support naval strikes into Yemen, others, primarily from Europe, worry that this would further worsen the situation and would rather see more attention paid to naval air defence.
Per the US Energy Information Administration, in the first half of this year, LNG flows through the Red Sea made up almost 8% of all global trade. After the UK’s maritime authority announced that it got reports of “incidents” in the Red Sea and recommended vessels move forward in the area with “caution,” BP released a statement a few hours later.
Marine underwriters associated with the London insurance market mentioned that the area in the Red Sea designated higher risks had been expanded. This is also more likely to increase the cost of insuring the vessels in the affected areas.
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