Oil and gas giant BP said it will pause all shipments through the Red Sea following an escalation of attacks on merchant shipping by Houthi militants.
BP’s (LON:BP) decision, the most tangible sign of disruption to energy flows since the Hamas-Israel war started, comes days after all the world’s top container shipping lines said they were temporarily halting. Norway’s Equinor ASA made a similar announcement hours later.
The moves came as a fuel tanker was struck by an “unidentified object” on Monday, according to its owner. Attacks are now occurring almost daily. An insurance committee that evaluates maritime risk widened the area in the Red Sea that it said was the most dangerous.
The disruptions are a stark reminder of the inflationary and economic pressures that make securing the area a top priority. The US and its allies are working on a plan to do that, but it hasn’t been finalized yet. Avoiding the Red Sea means sailing around Africa, adding thousands of miles to voyages and delaying cargo deliveries.
“It has been escalating beyond what we have seen at any point in time really,” Lars Barstad, chief executive officer of the management unit of tanker owner Frontline Ltd. said in an interview with Bloomberg TV. “It is a huge risk concern”
Two big oil tanker owners, Maersk Tankers and Euronav, also said late last week that were insisting on options giving them the right to avoid the area. On Monday, Euronav went a step further, saying it would avoid the area altogether.
Israel link
The Iran-backed Houthis say they are targeting any vessels with a connection to Israel as a response to the country’s war with Hamas. Those links have appeared increasingly tenuous in the past week or so, and the owner of the tanker that was attacked on Monday, the Swan Atlantic, said there was no connection.
“There is no Israeli link in the ownership (Norwegian), technical management (Singapore) of the vessel nor in any parts of the logistical chain for the cargo transported,” Rieber & Son said in a statement on its website.
The tanker was transporting a biofuel feedstock to La Reunion from France when it came under attack. There were no injuries and the vessel is sailing using its “own machinery with all systems operational,” Rieber & Son said.
Insurance reappraised
The Joint War Committee on Monday expanded the portion of the Red Sea that it considers to be part of the world’s riskiest waters. That expansion will mean the amount of time that ships need cover against war risks will increase. The cost of such cover has increased almost tenfold since the attacks first began.
Three container ships came under attack in the space of about a day late last week, prompting owners including MSC Mediterranean Shipping Co. SA, A.P. Moller-Maersk A/S, CMA CGM — the top three — to announce plans to stay away.
On Monday, German container carrier Hapag-Lloyd AG, which on Friday paused sailings through the Red Sea, said it too was sending several ships around southern Africa instead of going through Suez. That will continue until the canal and the Red Sea are safe again, a spokesman said.
There are 46 container vessels that have diverted around the southern tip of Africa rather than using the Red Sea and a further 78 awaiting instructions, Ryan Petersen, the founder of logistics firm Flexport said on X.
Suez update: 46 container ships now have diverted around the Cape of Good Hope rather than transiting the Red Sea. pic.twitter.com/4zaTXn3LO1
— Ryan Petersen (@typesfast) December 18, 2023
Diverting means ships can’t use Egypt’s Suez Canal, a conduit for 12% of global seaborne trade. That’s at a time when one alternative trade route — the Panama Canal — has also become constrained because of drought.
Oil and gas
Europe’s headline natural gas price surged by as much as 13%. Brent oil futures also rose.
BP’s step applies to all the ships that it owns and charters.
“We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region,” BP’s statement said.
BP and Equinor’s approach will put pressure on other firms to follow suit.
Equinor chose to reroute ships in the area, but hasn’t taken a decision on further activities, spokesperson Ellen Maria Skjelsbaek says in an email.
The Norwegian oil and gas company is following the situation closely and is in dialog with owners of ships carrying goods on its behalf and “‘other actors in the industry.”
A crewing company that puts thousands of crew on ships from a pool of more than 44,000 workers said earlier that it was advising owners to consider alternatives to the Red Sea.
Crew welfare
BP said that the welfare of its crew is the company’s priority, underscoring that commercial pressures are — for now at least — taking a back seat in the decision making of many of the world’s largest firms.
The Suez Canal has emerged as the main route for global LNG trade over the past two years, bolstered by Europe’s appetite for the super-chilled fuel as the main replacement of piped Russia gas. Its importance has amplified this year as Asia-bound cargoes take longer routes amid Panama Canal congestion.
The LNG vessel Celsius Geneva, heading empty to Suez, last Friday diverted away from the Red Sea to go the longer route via the Cape of Good Hope instead, ship-tracking data on Bloomberg show. Gunvor Group Ltd., which controls the carrier, declined to comment on why.
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