Red Sea Ship attacks raise concerns over oil prices, global trade

New Delhi, Dec 19: Analysts have cautioned that the recent spate of attacks on commercial ships in the Red Sea poses a significant risk of driving up oil prices and impacting the flow of goods. Several companies have halted shipments through the region following attacks by Houthi rebels in Yemen.

Maersk, the world's second-largest shipping line, announced on Tuesday its decision to reroute some vessels around Africa's Cape of Good Hope in response to the security threats.

BP also declared a temporary suspension of all oil shipments through the Red Sea, attributing it to the "deteriorating security situation" in the area, where Iran-backed Houthi rebels are targeting ships believed to be en route to Israel.

The disruption has prompted the United States to initiate an international naval operation aimed at safeguarding ships in the Red Sea route. Participating countries include the UK, Canada, France, Bahrain, Norway, and Spain.

US Defence Secretary Lloyd Austin, in a virtual meeting with ministers from over 40 nations, emphasized the need for a collective international response to address the serious threat posed by Houthi attacks.

The Red Sea serves as a crucial route for oil and liquefied natural gas shipments, as well as consumer goods, linking the Bab al-Mandab Strait in the south to the Suez Canal in the north.

Houthi rebels, expressing support for Hamas in its conflict with Israel, claim to target vessels bound for Israel. Several ship companies, such as Investor Chemical Tankers, denied any links to Israel despite their ships being attacked.

While an international naval operation has been launched to ensure safe passage through the Red Sea, Maersk indicated uncertainty about when it would resume journeys along the route. The company stated that a case-by-case assessment would determine if adjustments, including diversions via the Cape of Good Hope, were necessary.

Rerouting could impact global trade beyond oil, affecting around 12% of the world's trade, equivalent to approximately $1 trillion of goods annually.

BBC quoting Richard Meade, Editor-in-Chief of Lloyd's List, highlighted potential serious implications for the global supply chain if rerouting continues. Marco Forgiona, Director General at the Institute of Export and International Trade, noted increased fuel and insurance costs for shipping, potential port congestion, and delays due to rerouting.

Higher oil prices resulting from the situation could contribute to further inflation.

Houthi rebels, using drones and rockets against foreign-owned vessels, have targeted ships heading to Israel. The International Maritime Organisation (IMO) is monitoring developments, emphasizing the unacceptability of attacks on international shipping in the Red Sea and advocating for unimpeded trade by international maritime law.