• BP takes a significant step as it becomes the first major oil company to pause its shipments in the Red Sea because of the deteriorating security situation.
• The USA creates a maritime security coalition in response to the Houthis but certain countries including Saudi Arabia, Qatar and Egypt refuse to join as of yet.
BP became the first major oil company to halt all shipments through the Red Sea due to a worsening security situation on December 18th. This decision comes in response to increased attacks by Yemeni rebels on ships in a key route handling approximately 10% of global trade. The move has had a slight impact on oil prices, with Brent crude rising 1.8% to $77.95 per barrel, and West Texas Intermediate settling 1.5% higher at $72.47. The UK’s benchmark gas price has also surged up to 14%, and the EU’s rose nearly 13%, reflecting concerns about the transportation of liquefied natural gas.
BP emphasized that the decision to pause shipments through the Red Sea is a precautionary measure, subject to ongoing review based on the volatile circumstances in the region. This move has triggered an upward trend in the shares of major shipping companies, with investors anticipating disruptions leading to increased freight rates (the price for transporting cargo from one point to another).
Notable shipping companies like MSC (Mediterranean shipping company) have announced that they will “divert” their ships away from the Red Sea. AP Møller-Mærsk and Hapag-Lloyd, have also temporarily halted transit through the Red Sea. Some shipping companies may decide to use the Cape of Good Hope route contributing to expectations of potential delays in commodity, consumer goods, and oil deliveries between Europe and Asia. As the situation unfolds, other companies are being closely watched to see if they follow BP’s lead.
While the Houthis attacks have raised concerns, other alternative routes exist meaning there may not be a significant impact on production and therefore prices. For this reason, the markets haven’t dramatically reacted to the escalation of the situation in the Red Sea. Furthermore, The USA’s recent announcement of the creation of a maritime security task force to safeguard the Red Sea may have calmed some of these concerns.
The USA leads a longstanding international coalition based out of Bahrain, called the Combined Maritime Forces (CMF). While American, and more recently British and French, warships have been willing to defend shipping from airborne attacks, the other partners in CMF have been absent. The new task force is a subset of the CMF coalition and will operate under the CMF banner, but it will operate under a new name, Operation Prosperity Guardian.
The 9 nations participating in this new task force with The USA include: The UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain. Some members are absent, including: Saudi Arabia, Qatar, Oman, Jordan, Iraq and Kuwait. Egypt, the largest naval power in the Middle East and the top financial beneficiary of Red Sea-Suez shipping, is also missing. However, the stances of the countries mentioned on the situation are subject to change.
The reluctance of the countries mentioned could be due to many reasons. One of which is if countries like Saudi Arabia attack the Houthis in the Red Sea, Iran may be dragged into and directly involved in the war more than it already is. This is something avoidable for the whole region especially because it will ruin a nascent rapprochement between Saudi Arabia and Iran as the two countries reestablished ties earlier this year (brokered by China). Furthermore, Saudi Arabia may be looking to sign a deal with the Houthis regarding the situation in Yemen and many Arab countries might not want to be seen as supporters of Israel if they strike down the Houthis.
