FACTBOX: Seaborne trade reroutes away from Red Sea over Houthi attacks

More shipping is avoiding the Red Sea and Bab al-Mandab strait after a spate of attacks by Houthi militants from Yemen threatening the strategic chokepoint for global seaborne trade.

More than 15 vessels have been attacked in the Red Sea over recent weeks, triggering many shippers, tanker owners and at least two oil companies to suspend voyages through the area.

"Houthi attacks are likely to continue to target international vessels irrespective of their public connection to Israel, with Houthi statements on Israel affiliation or destination in S&P Global Market Intelligence's view obfuscating truer motivation and intent," said Jack Kennedy, S&P Global Commodity Insights' head of Middle East and North Africa country risk. "The global nature of energy markets and indigenous capacity should mean the impact on crude oil (13.1%) and refined oil products (21.5%) can be managed."

Trade flows

Around 12% of global trade passes through the Suez Canal, representing 30% of all global container traffic and over $1 trillion worth of goods annually. Tonnage transiting the Bab al-Mandab Strait chokepoint has dropped by more than half since the beginning of December, S&P Global Commodity Insights data shows, as increased security risks have prompted all vessel types to divert voyages. Many have rerouted vessels via the Cape of Good Hope, a longer voyage with increased costs.

• The world's biggest container shippers Mediterranean Shipping Company (MSC), CMA CGM, Maersk. Hapag-Lloyd AG, and Evergreen have suspended shipping via the chokepoint.
• Energy companies BP and Equinor are re-routing vessels away from the area as are tanker owners Euronav and Frontline. Taiwan's Yang Ming Marine Transport has diverted ships via the Cape for two weeks.
• Greece, whose shipowners control a fifth of the world's commercial vessels, has advised owners sailing in the Red Sea and the Gulf of Aden to avoid Yemeni waters.
• Of the vessels rerouted from the Suez since Dec. 15, bulk carriers represented around 35%, followed by container ships (24%) and crude oil tankers (24%), data from S&P Global Maritime Intelligence Risk Suite shows.
• Overall, an average 7.9 million b/d of crude oil and refined products sailed through the Suez Canal during the first 11 months of the year, S&P Global Commodities at Sea data showed.
• Russia's oil exports East are now particularly exposed to further Red Sea disruption as Moscow now ships some 80% of its crude to Asian markets.
• Russian-loaded crude and products, including Kazakh grades, traveling south through the canal comprised 42%, or 3.16 million b/d, of Russia's total exports through November, an increase of 20 percentage points from 2022, according to CAS.
• Diverted ships will need to take the longer Cape of Good Hope route, which adds at least two weeks to voyage times, resulting in more ton-mile demand, higher freight rates, and reliance on stocks in importing countries.
• So far in 2023, about 7% of global dry bulk trade volumes have transited through the Suez Canal.

-- LNG flows through the Bab al-Mandab Strait have matched those in the Suez Canal over the last few years because the few LNG import terminals in the Red Sea have been used less.

• There have been a number of cargo diversions away from the Red Sea, but Qatari LNG exports to Europe continue through the Red Sea and Suez Canal, with no diversions to date.
• Sellers in the market have also been heard to be favoring inter-basin trading activity over trading between regions in order to avoid the Red Sea.

Prices

Global oil prices and freight rates have been supported by the attacks on ships in the Red Sea amid raised concerns over supply disruptions. The main alternative route transiting via the Cape of Good Hope adds more than 15% to shipping costs to a typical journey, according to S&P Global analysts.

• Platts, part of S&P Global, assessed Dated Brent crude at $81.87/b on Dec. 20, up 2% on the day, and $8.32/b, or 11% higher than on Dec 12 when the Houthi attacks intensified.
• For crude tankers, Platts assessed the rate to carry a 140,000 mt cargo of crude on the Persian Gulf-Mediterranean route at $17.93/mt on Dec. 20, a 26% jump from the Dec. 12 assessment.
• Bunker prices have risen as a result of ships taking the longer route around the Cape. Platts assessed the price for Rotterdam VLSFO bunkers, the port's most prevalent fuel grade, at $560/mt Dec. 21, up 7.7% since Dec. 12.

--Freight rates and gas prices have also reacted to heightened tensions in the region and more vessels re-routing to avoid the threat of attack.

• On the Southeast Asia to East Coast North America route, container freight rose $350/FEU to a three-month high of $2,600/FEU on Dec. 18 and has remained there since.
• European gas prices spiked after BP suspended shipping via the Red Sea on Dec. 18, rising by more than 10% to as high as Eur37.50/MWh, but gas prices have retraced much of their gains as fears over possible impact on the European gas market subsided.
• Platts assessed the benchmark Dutch TTF month-ahead price at Eur33.65/MWh on Dec. 20.

Infrastructure

The 20-mile-wide Bab al-Mandab Strait -- which lies between the Horn of Africa and Gulf peninsula -- connects the Red Sea to the Gulf of Aden and the Arabian Sea.

• Together with the Suez Canal and the SUMED pipeline, total oil shipments via the routes accounted for about 12% of total seaborne-traded oil in the first half of 2023, and LNG shipments accounted for about 8% of worldwide LNG trade.
• The Suez Canal and the Bab al-Mandab Strait accounted for 8.8 million b/d of total oil flows in the first half of 2023, according to the US Energy Information Administration.
• The Red Sea is key for crude and oil product exports from the Persian Gulf to the Mediterranean via the Suez Canal or SUMED pipeline. In the other direction, Russia ships significant volumes of Urals crude to Asia via the route.
• Saudi Arabia transports some crude oil from the Persian Gulf via pipeline to the Red Sea for export mostly to Europe.
• The US on Dec. 18 said it was setting up a multinational coalition to safeguard Red Sea shipping called Operation Prosperity Guardian. The operations would be joined by the UK, Bahrain, Canada, France, Italy, the Netherlands, Norway, the Seychelles and Spain.
• The EU formally agreed to contribute to the operation to protect commercial maritime transport in the Red Sea on Dec. 21.
• A number of major ports are also potentially affected by the disruption caused by attacks. Jeddah and Yanbu on the Red Sea coast of Saudi Arabia could potentially be affected by a slowdown in traffic.
• Port of Sudan exports Dar and Nile Blend crudes produced in Sudan and South Sudan.