Following Iran's decision to send a warship to the crucial trading route and refuse pleas to stop supporting Houthi rebel attacks on ships in the Red Sea, oil prices have increased significantly.
Tuesday's first trading session of the year saw Brent crude rise $1.28, or 1.7%, to $78.32 per barrel, while US West Texas Intermediate crude gained $1.04, or 1.5%, to $72.69 per barrel.
Fears of a disruption in supplies due to the Red Sea hostilities, which led to the Suez Canal, drove up prices.
Some maritime firms have stopped making the route, preferring to take a far longer detour around Africa. Shipping businesses may incur additional costs and time due to vessel rerouting.
"An increase in hostilities in this area will undoubtedly result in a higher risk premium on Brent," senior energy analyst Neil Beveridge of the international research firm Bernstein stated to CNBC. But for now, he pointed out, there won't be any significant effects.
The Iranian naval incursions are unprecedented in our experience. At this point, he continued, "I don't see any significant impact as long as it doesn't escalate."
In revenge for Israel's war in Gaza, which has claimed the lives of around 22,000 people so far, the Houthi group has begun bombing ships in the Red Sea, specifically targeting Israeli ships and other vessels traveling to or from Israel.
Early in December, major shipping corporations decided to reroute via southern Africa, which is a lengthier and more costly route with ocean freight rates reaching as high as $10,000 per container. Instead, they ceased using the Red Sea and Suez Canal.
Hapag-Lloyd, a German container carrier, announced on Friday that it will keep rerouting its ships to avoid the Suez Canal.
But the U.S.'s deployment of Operation Prosperity Guardian, a multinational marine force, has given shipping businesses more confidence. On Sunday, the massive Danish shipping company Maersk announced that it will start up again in the Gulf of Aden and the Red Sea.
Expectations of robust demand during China's spring festival vacations in February and economic stimulus in the nation—which is the world's largest crude importer—also helped to lift oil prices.
According to a Reuters survey of economists and analysts, global tensions would likely persist while demand will be restrained by weak global growth, resulting in an average price of Brent crude of $82.56 per barrel this year—a little higher than the $82.17 average in 2023.
The Alborz destroyer reached the Red Sea on Monday, according to Iranian official media, although it did not indicate what its purpose was. It just mentioned that it performed operations in the Red Sea on a regular basis to protect shipping lanes.
The US navy claimed to have sunk three boats that were aiming for a container ship in the Red Sea, while the UK is also planning attacks against the Houthi rebels.
According to the US, four boats from Houthi-controlled parts of Yemen attacked a commercial ship that belonged to the shipping giant Maersk, and the US reported that its helicopters fired at them. Maersk announced on Sunday that all Red Sea shipping will be suspended for 48 hours and that its crew was safe.
The incident was the most recent of around 20 attacks that have forced some maritime companies to completely give up on the Red Sea route.
Post a Comment