Energy Supplies Threatened

(DailyEmailNews.com) – Following the outbreak of the Israel-Hamas war and the rising tensions in the region, the Iran-backed Houthi militias began attacking ships navigating the Red Sea off Yemen’s coast.

The escalation prompted a joint military response from the U.S. and U.K., supported by allies including Australia, Bahrain, Canada, and the Netherlands. The airstrikes’ objective was to neutralize the threat posed to shipping in this critical maritime region.

In a recent analysis of the situation, two commodities strategists from ING bank highlighted the conflict’s potential ramifications on global commodity markets, particularly emphasizing the vulnerability of energy markets.

While oil and liquefied natural gas (LNG) supplies have not yet experienced a meaningful impact, the strategists warned about the possibility of intensifying conflict leading to broader issues. Approximately 12% of the world’s seaborne oil passes through the Red Sea, heading both north to Europe and south to Asia.

In response to the heightened conflict, many companies have decided to reroute their shipments around the Cape of Good Hope at the southern tip of Africa, which causes longer travel times. This rerouting is expected to create potential oil supply constraints, reduced tanker availability, and increased transportation rates.

As The Wall Street Journal reported, prominent British oil corporation Shell recently suspended all Red Sea shipments, citing fears of further escalation, including risks to oil spills and crew safety. Shell CEO Wael Sawan acknowledged the suspension’s impact on energy trade and pricing, given the additional weeks required for cargo transport.

Similarly, Chevron has maintained movement in the Red Sea, though CEO Michael Wirth expressed concerns to CNBC about the potential repercussions of a major supply disruption in the Middle East on oil prices and flows. Wirth characterized the situation as increasingly grave, with significant implications should the region’s oil flow be obstructed.

Other major players, such as BP and QatarEnergy, have also suspended their Red Sea shipments, with Reuters reporting that QatarEnergy halted LNG tanker movements over the weekend.

The analysts stressed the increasing importance of LNG flow through the Red Sea, especially as Europe now relies more on LNG due to Russia’s decision to cease pipeline gas supplies amid the Ukraine war. This exposes Europe to more fluctuations in the LNG market.