Fuel prices have already reached record highs in the past few months since the United States and Israel’s attacks prompted Iran to close the Strait of Hormuz, but a new threat is emerging which may worsen the global oil crisis.
The Department of Energy (DOE) said that the concern is no longer just the Strait of Hormuz, but the Red Sea as well.
Shipping traffic in the Red Sea has slowed down after Yemeni Houthi rebels launched a series of attacks on ships going to and from Saudi Arabia.
“We have now returned to the P80 to P90 price range, and the persistent concern is no longer just limited to the Strait of Hormuz. A new concern is emerging, as the issue is now spilling over into the Red Sea,” DOE-Oil Industry Management Bureau (OIMB) director Rino Abad said in Filipino in a Super Radyo dzBB interview on Friday.
Currently, Abad said there is no actual damage reported yet in Saudi Arabia’s Petroline or the East-West oil pipeline, but once there is, shipping of around 6 to 7 million barrels of crude oil may be affected.
Geographical importance
So why is the Red Sea so important?
Saudi Arabia is one of the world’s top exporters of oil. The country is landlocked in the north and south, but to its east is the Persian Gulf (which connects to the Strait of Hormuz) and to its west is the Red Sea.
The Red Sea — much like the Strait of Hormuz — is a vital waterway for oil shipping. It connects the Suez Canal in the north and the Bab-el-Mandeb Strait in the south, with the SUMED pipeline also connecting to the sea.
The Bab-el-Mandeb Strait is the chokepoint that connects the Red Sea to the Gulf of Aden. The Gulf of Aden leads to the Arabian Sea and the Indian Ocean.
Around 14% of global maritime trade and 30% of containerized trade travels through the Red Sea, according to the International Transport Forum (ITF).
For oil, the United States Energy Information Administration estimated that the trade routes connected by the Red Sea account for 12% of the world’s seaborne-traded oil and 8% of worldwide liquefied natural gas as of 2023.
A blockage in the Red Sea can have significant impacts on global trade, the ITF said.
The ITF noted that from 2023 to 2024, there was a decline in the number of crude oil tankers, liquefied natural gas carriers, and liquefied petroleum gas carriers that crossed the Bab-el-Mandeb Straits.
Additional shipping costs
The disruption in the Red Sea from Houthi attacks spell additional costs on shipping companies, shippers and states.
For example, should a ship opt to sail the long way around and pass southern Africa to avoid the dangerous Red Sea, it costs shipping lines more time and money.
The ship will consume more fuel, and it will take more sailing days to reach its destination.
Moreover, it is more expensive to provide insurance for ships that go through the Red Sea.
Insurers typically would waive additional premiums for insurance or keep it as 0.05% of the ship’s value. Following the Houthi attacks, this was raised to 1%, according to the ITF.
This could represent an additional $1.3 million per ship, the forum said.
The ITF also said that shipping companies incur increased maritime security costs, with some of them using private armed guards to deter attackers. — BAP/KG GMA News