In response to targeted attacks by Houthi militants on commercial shipping vessels in Yemen, major shipping companies have strategically altered their cargo sailing routes, avoiding the Red Sea due to concerns about vessel safety and security amid escalating conflicts in the region.
The attacks by the Houthi group, particularly in support of Hamas during the Israel-Hamas war in October, utilized drones and rockets against foreign-owned vessels navigating critical trade routes, such as the Bab al Mandeb and Suez Canal. These routes are crucial links between the Mediterranean Sea and the Indian Ocean through the Red Sea, facilitating approximately a third of all global container ship voyages.
As a result of the rerouting of vessels, there has been a significant surge in oil prices. In the first trading session of the new year, Brent crude rose by 2% to $78 (£62) per barrel, while US West Texas Intermediate crude stood at $73 (£58).
In response to the heightened risks, BP suspended oil and gas shipments in December, with Germany’s Hapag-Lloyd and Maersk also rerouting their ships around Africa’s southern Cape of Good Hope until the Red Sea is considered safe for vessels and crews.
The decision to reroute ships for safety reasons comes with significant costs and delivery delays, extending voyage durations by seven to 20 days. This has broader implications, affecting consumers as well. IKEA, for instance, has warned of potential delivery delays and reduced product availability.
Alongside the increase in oil prices, shipping rates have risen by 4% over the past week. This escalation may lead businesses to pass on higher costs to customers, potentially impacting consumer prices across various sectors.