Are you ready for literally everything to get (even) more expensive?
Yemen's Iran-backed Houthi militants are using attack drones and missiles in the Red Sea to not only target Western Navies friendly to Israel, but to attack commercial ships as well. This has led large shipping firms such as MSC, Hapag-Lloyd, CMA CGM, Maersk, and now BP to suspend operations in the Red Sea Strait, a shipping route where 12% of global trade makes its way.
The Houthi militants say they won't let up on these attacks until Israel eases its offense in Gaza.
BP has become the latest firm to pause travel through the Suez Canal following a series of attacks on vessels by Houthi militants from Yemen.
In a statement Monday, the oil major said the safety of its workers was its priority.
"In light of the deteriorating security situation for shipping in the Red Sea, bp has decided to temporarily pause all transits through the Red Sea," it said. "We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region."
Shipping giants MSC, Hapag-Lloyd, CMA CGM and Maersk have also all announced suspensions of travel through the Red Sea due to the drone threat, meaning no access to the key link between Europe and Asia between the Middle East and North Africa.
Maersk is the largest shipping company on the planet, FYI, and they suspended Red Sea operations on Friday.
This Israel-Palestine conflict is slowly morphing into a global conflict here, and if we're not careful, it will surely devolve into at least regional chaos, if not worse.
Let's take a look at what shipping firms and Western navies are seeing down there in the Red Sea:
Violence resumed on Monday in the Red Sea, with the U.K. Maritime Trade Organization saying it was alerted that a vessel nearly 30 miles out from Yemen's port of Mokha "experienced an explosion on its port side." In a separate note, the UKMTO said that it was informed of an incident whereby vessel AST fired warning shots at a craft with armed personnel that was approaching it.
Earlier Monday, U.S. officials told Reuters the M/V Swan Atlantic — a chemical and oil products tanker — was attacked in the southern Red Sea by multiple projectiles launched from Houthi-controlled territory.
Analysts say the developments could cause a major shock to global supply chains.
"You are going to see some fairly seismic activity in terms of the implications for supply chains" if all current and expected reroutings are sustained, Richard Meade, editor in chief at shipping journal Lloyd's List, told CNBC Monday before BP declared its suspension.
Oil prices have already picked up sharply since the announcement, with Brent futures with February expiry up by $1.50 per barrel to $78.05 per barrel at 13:19 London time, while the front-month January Nymex WTI contract was higher by $1.44 per barrel to $72.87 per barrel.
Houthi militants just firing at commercial tankers like they're the enemy. I have no words for this kind of warfare.
There's really no getting around this for the shipping giants (save rerouting around Africa), and it looks like the U.S. is going to step in and offer them naval escorts through the Red Sea Strait, though that might not be enough to convince the firms that it's safe. On Saturday alone, U.S. and British warships shot down 15 suspected attack drones over the Red Sea, one of which was attacking commercial ships.
Keep in mind, these are Iranian-backed militants in the Houthis. Iran would see these U.S. escorts as an escalation, and no doubt they would up the ante in the Red Sea in response. If we're going to offer up naval escorts to these shippers, we'd better be prepared to escalate the conflict should the opportunity present itself.
A little positivity here:
Current events "change the fundamentals" in the market, Heaney said. "We've been in a downcycle, with the market oversaturated with an abundance of ship capacity — so this will come to the rescue for carriers which have a surplus," Heaney said.
"Too many ships is a good thing because it can cater for these disruptive events."
For the owners of cargo, however, the current disruption could mean either longer lead times for goods to arrive, or having to pay more to justify carriers traveling faster.
"In shipping there is always an alternative pathway, it will just take longer and time equals cost. However, carriers may opt to travel faster because they will save millions on Suez transit fees," Heaney said.
"Liners will recalibrate and the worst of the congestion will be in the initial phase while they make this adjustment. Freight rates are going to be on the up again, but I don't think they will go up as dramatically as before."
My money's on the market here, as it always seems to find a way, no matter how much Iran wants the world to burn. Something to keep an eye on, however, as this Israel-Palestine conflict continues.
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