BP is the first major oil company to halt all shipments via the Red Sea. The company mentioned a worsening situation because of the increasing attacks by Yemeni rebels on ships using a route that manages about 10% of worldwide trade.
Brent crude, which is the benchmark for international oil prices, rose by 1.8% to $77.95 per barrel. West Texas Intermediate (the US equivalent) settled at $72.47, up 1.5 per cent.
Concerns about the shipping of liquefied gas led to a jump in the UK’s benchmark price for gas by as much as 14%, while that of its European counterpart rose as high as 13 percent.
The UK oil group made its decision as Iran-backed Houthi Rebels intensified their offensive against ships passing through Suez Canal after the outbreak of Israel’s war with Hamas.
BP stated on Monday that they will continue to monitor the situation in the region and keep the precautionary pause in mind.
Investors expect freight rates to increase due to disruptions, which will boost earnings.
AP Moller-Maersk – which runs the second-largest fleet of container ships in the world – rose by 3.1 percent, while Hapag-Lloyd – the fifth-largest – jumped by almost 8 percent. Last week, both companies halted their transits through the Red Sea due to the threat of attack.
The longer routes around Africa can delay the delivery between Europe and Asia of consumer goods, oil and commodities.
Traders are also closely watching to see if other companies follow BP.
Trafigura is a privately held company and one of the largest independent traders in the world of oil, LNG, and other commodities. It said that it was closely monitoring the situation.
Shell has declined to comment.
Henning Gloystein is a director with the Eurasia Group. He said that the price of Brent crude could increase by “at least” $10 to $15 if all shipments were routed around Africa and not through the Red Sea. He added that prices for TTF, Europe’s main benchmark gas trading, could increase by 25-30%.
Gloystein stated that BP was the first global portfolio company to [pause shipments]. It will be crucial to determine how the US and European task forces respond.
Ship owners have asked for protection along maritime routes. The US, after suffering an attack on a warship in this month, is about to announce the expansion of a multinational task force to defend vessels in Red Sea.
Gloystein said that there was a lot going on. Some in the US were pushing for naval strikes against Yemen while others, mainly from Europe, feared this would escalate things. They prefer to focus instead on naval air defense.
According to the US Energy Information Administration, LNG exports through the Red Sea represented about 8% of the global trade during the first half this year.
BP’s announcement came just hours after UK’s maritime authority announced that it had received reports about “incidents” on the Red Sea, and advised ships to proceed with caution in the area.
According to marine underwriters on the London insurance markets, the Red Sea area designated as higher risk has been expanded. It is expected that the cost to insure vessels in these areas will increase.
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