Violence related to the Israeli-Palestinian conflict is endangering the global economy, with merchant shipping in the Red Sea coming to a standstill and oil tankers and container ships being forced to detour around Africa. Two European oil and gas majors said on Monday their tankers would avoid waters off Yemen, a move that would mean they abandon access to the Mediterranean through the Suez Canal. As the Iran-backed Houthi armed group intensifies attacks on merchant ships in support of Hamas, more and more large container shipping companies have been forced to withdraw from the waters.

European natural gas prices soared by 13% at one point, providing the clearest evidence of the impact on energy trade since the Israel-Kazakhstan war. Brent crude oil futures rose 3.9% at one point.

From BP to Maersk, companies transporting consumer goods, commodities such as coal and corn, and energy products face longer voyages in the future. Although the current global supply chain still has the capacity to cope with the recent tight capacity, the sudden closure of the Suez Canal in 2021 has made people know how fragile this logistics network will be once the main shipping hub is paralyzed.


As global trade is threatened, U.S. officials are doing everything they can to plan countermeasures. Defense Secretary Austin will convene a meeting with other ministers on Tuesday and is expected to propose the establishment of a new maritime task force to deal with Yemeni militants. But it is not easy to do in practice, and there is no consensus among the Gulf countries.

trade threats

These incidents threaten a key global trade corridor, through which about 12% of global seaborne trade occurs. At the same time, another important shipping channel - the Panama Canal - has been severely affected by drought. Central banks around the world are cautious about inflation risks.

Torsten Slok, chief economist at Apollo Global Management, said, "The rising uncertainty about the Suez Canal, coupled with the rebound of the global economy due to loose financial conditions, will put upward pressure on commodity prices in the coming months."

Only 56 commercial ships entered and exited the Red Sea on Saturday and Sunday, a 35% drop from the beginning of the month.

BP said it was assessing changes in conditions in the area and that stopping entry into the Red Sea was primarily a precautionary measure and would remain so during the assessment phase. Neither BP's own nor its chartered vessels will pass through the Red Sea, a decision followed hours after the company announced its decision, followed by Norway's Equinor ASA.

An oil tanker was hit by an "unidentified object" on Monday, according to the ship's owner. Attacks occur almost daily in the Red Sea.

“The situation has escalated to a greater extent than we have ever experienced,” said tanker owner Frontline Ltd. Management CEO Lars Barstad said in an interview. "That's a huge risk concern."

Israel

The Iran-backed Houthis have said any ships with ties to Israel will be targeted in response to the Israeli-Palestinian conflict. But over the past week or so, such a connection has seemed increasingly far-fetched. The owners of the Swan Atlantic tanker that was attacked on Monday said their tanker has no connection to Israel.

Rieber&Son issued a statement on its website stating that the ship's owner (Norway), technical manager (Singapore) and any link in the logistics chain of the goods transported have nothing to do with Israel.

Premiums rising

The Joint War Risks Board, a well-known insurance agency, on Monday circled a larger area of ​​​​the Red Sea considered to be the world's most dangerous waters, which means that ships passing through the waters will need to pay more premiums for war risks. Such premiums have increased nearly ninefold since the first attacks.

Late last week, three container ships were attacked in about a day, prompting the top three shipowners, including Maersk, to announce plans to stay away from the waters. German container shipping company Hapag-Lloyd AG said on Monday it would send several ships around South Africa instead of passing through the Suez Canal. A spokesman said the situation would continue until the canal and the Red Sea were safe again.

Ryan Petersen, founder of logistics company Flexport, posted on X that 46 container ships have abandoned the Red Sea and detoured to South Africa. There are also 78 ships waiting for instructions.


Container shipping rates from Asia to the Mediterranean are already rising. Freight rates for a 40-foot container through the Suez Canal were $2,414 as of Sunday, up 62% since the end of November, according to international freight booking and payments platform Freightos.com.

The Suez Canal has become a major thoroughfare for global liquefied natural gas trade over the past two years. The importance of the Suez Canal has been magnified this year as congestion in the Panama Canal forced goods bound for Asia to take longer routes. LNG ships now have to reroute around the Cape of Good Hope, a longer and more expensive route.

"The situation does mean higher shipping costs and some short-term delivery delays," said Henning Gloystein, director at research firm Eurasia Group. "All of these costs will be passed directly on to consumers."