Khaled Abdullah/Portal
Armed men stand on the beach as the merchant ship Galaxy Leader, which was hijacked by Yemen's Houthis last month, anchors off the country's coast near al-Salif on December 5.
London CNN –
Oil and natural gas prices rose sharply on Monday after BP (BP) said it would suspend all shipments through the Red Sea due to increasing attacks on merchant ships by Houthi militants from Yemen.
The decision by one of the world's largest oil companies follows similar moves by major shipping companies. Analysts have warned that this could impact global supply chains and increase the cost of transporting goods.
“In light of the deteriorating shipping security situation in the Red Sea, BP has decided to temporarily suspend all transits through the Red Sea,” the company said in a statement. “We will continue to review this precautionary pause, subject to evolving circumstances in the region.”
Oil posted strong gains on the news. Brent crude, the global benchmark, rose 2.7% to $78.64 a barrel at 11:15 a.m. ET. U.S. oil rose 2.8% to $73.44 a barrel.
The news also impacted the natural gas market. Europe's benchmark prices for the fuel rose 7.7% to more than €35.75 ($39.04) per megawatt hour. That's just a fraction of the all-time high of €320 ($349.24) per megawatt hour reached in August 2022 at the height of the continent's energy crisis, but still the most concrete sign yet of disruption in commodity markets following the attacks.
Airstrikes by the Iranian-backed Houthis, who support Hamas and the Palestinian people, have become more frequent since the war between Israel and Hamas broke out. The militants described the attacks as revenge against Israel. The United States and its allies are now considering whether to expand an existing maritime task force in the Red Sea to protect merchant ships.
The world's largest container shipping companies have disrupted transit through one of the world's trade arteries, which experts say could cripple supply chains and drive up freight costs.
MSC, Maersk, CMA CGM and Hapag-Lloyd all said in recent days that they would avoid the Suez Canal for safety reasons. The canal connects the Red Sea with the Mediterranean, both of which connected Israel. Evergreen Group's container shipping division joined the list on Monday, saying in a statement that it would suspend its Israeli import and export service “effective immediately until further notice.”
In another statement shared with CNN, the company said its container ships would suspend all shipping through the Red Sea.
On Friday, Houthi rebels claimed responsibility for attacks on two MSC ships.
“The situation continues to deteriorate and security concerns are increasing,” French group CMA CGM said in a statement on Saturday as it announced that ships scheduled to sail through the Red Sea had been ordered to suspend their voyages “up to “further” to interrupt.
“CMA CGM is taking all necessary steps to maintain its transportation services to its customers,” the company added.
But analysts warn that the disruption to a key trade route between East and West could have a negative impact on supply chains.
“Global freight transport can expect tariff increases, diversions and longer transit times,” said Judah Levine, head of research at logistics company Freightos.
Some ships are already being rerouted via the Cape of Good Hope in Africa, adding up to three weeks to travel times and increasing fuel costs.
“This means that a week of significant capacity diversions, after a delay of a few weeks, could have widespread impacts lasting several months,” UBS analysts wrote in a note on Sunday, noting that about 30% of global container trade passes through the Suez Canal.
The analysts said that if disruptions continue, shippers may be able to “secure higher than expected rates” as they renegotiate long-term contacts in the coming days and weeks.
According to the United Nations Conference on Trade and Development, more than 80% of global trade in goods travels by sea. And maritime traffic through the crucial Panama Canal is already restricted due to a severe drought.
Supply chain snafus and a rise in shipping costs during the Covid-19 pandemic were the main drivers of inflation, as companies passed on the increased costs of transporting their goods to consumers.
The latest disruption could affect consumer goods companies in Europe and North America. “Consumer goods will be the hardest hit, despite disruptions currently occurring during the off-peak shipping season,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.
However, it is still too early to say whether there will be a sustained rise in prices and much depends on how long the disruption lasts, said Rico Luman, senior economist at Dutch bank ING.
“A big difference compared to the pandemic era is that the balance between demand and supply is much more relaxed,” he told CNN. “There is currently excess capacity in container shipping, which will probably prevent prices from rising further.”
Freightos' Levine shared that sentiment. “Due to the longer journeys, shippers could expect longer lead times, but operations should continue to run reasonably well.”
This story has been updated with additional context and developments.
Anna Cooban, Rob North and Olesya Dmitracova contributed reporting.