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Oil and natural gas prices rose sharply Monday after BP (BP) said it would pause all shipments through the Red Sea because of increased attacks on commercial vessels by Houthi militants in Yemen.
The decision by one of the world’s biggest oil companies follows similar moves by major shipping firms, something analysts have warned could ripple through global supply chains and increase the costs of moving goods.
“In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the company said in a statement. “We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”
Oil posted steep gains on the news. Brent crude, the global benchmark, was up 2.7% at $78.68 a barrel by 9.30 a.m. ET. US oil also rose 2.7% to $73.38 a barrel.
The news also affected the natural gas market. Europe’s benchmark natural gas prices surged more than 9% to above €36 ($39.65) per megawatt hour. That’s still just a fraction of the all-time high of €320 ($349.24) per megawatt hour seen 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.
Aerial attacks by the Iran-backed Houthis, who support Hamas and the Palestinian people, have become more frequent since the outbreak of the Israel-Hamas war. The group has claimed the attacks as revenge against Israel. The United States and its allies are now considering whether to expand an existing maritime taskforce in the Red Sea to protect commercial vessels.
The world’s biggest container shipping companies have also paused transit through one of the world’s vital trade arteries in a move that experts say could snarl 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 over safety concerns. Evergreen Group’s container shipping arm joined that list Monday, saying in a statement that it would suspend its Israel import and export service “with immediate effect until further notice.”
On Friday, Houthi rebels claimed responsibility for attacks on two MSC vessels.
“The situation is further deteriorating and concern of safety is increasing,” French group CMA CGM said in a statement Saturday as it announced that ships due to pass through the Red Sea had been instructed to pause their journeys “until further notice.”
“CMA CGM is taking all necessary steps to preserve its transportation services for its customers,” the company added.
But analysts have cautioned that the disruption to a key trade route between East and West could have knock-on effects on supply chains.
“Global freight can expect to see rate increases, rerouting and longer transit times,” said Judah Levine, head of research at logistics company Freightos.
Already, some ships are being rerouted via the Cape of Good Hope in Africa, adding up to three weeks to journey times and increasing fuel costs.
“This means that one week of meaningful capacity rerouting could have ripple effects for several months ahead, after a lag of a few weeks,” UBS analysts wrote in a note Sunday, highlighting that around 30% of global container trade passes through the Suez Canal.
The analysts said that, if the disruptions persisted, shippers might be able to “lock in higher-than-expected rates” as they renegotiate long-term contacts in the coming days and weeks.
This story has been updated with additional context and developments.
Anna Cooban and Rob North contributed reporting.
David Turner is a globe-trotting journalist who brings a global perspective to our readers. With a commitment to shedding light on international events, he explores complex geopolitical issues, offering a nuanced view of the world’s most pressing challenges.
