The price of oil has risen dramatically after Iran refused to stop supporting attacks by Houthi Rebels on vessels in Red Sea, and sent one warship along the main trading route.
Brent crude climbed $1.73 or more than 2.4% to $78.77 per barrel in the first trading day of the year on Tuesday. US West Texas Intermediate crude rose by $1.71 or 2.4% to $73.36 per barrel.
Fears of supply disruption due to tensions on the Red Sea which leads to Suez Canal drove prices higher.
Some shipping companies have stopped sailings along the route to opt for the longer trip around Africa’s tip. Shipping companies incur additional costs and can delay deliveries by up to 20 working days when rerouting vessels.
Hapag-Lloyd of Germany, whose ship was attacked last month near Yemen, announced on Tuesday that it will continue to divert all of its vessels from the Suez Canal, and away from Cape of Good Hope, until at least the 9th of January, for safety reasons. Other companies will likely follow suit.
According to Project 44, as of 29 December, 28 vessels heading towards the Suez Canal had been halted. 166 vessels were rerouted. The group said that daily traffic in the Suez Canal was on average 55% less than it was before the attacks.
The price of oil was also supported by the expectation of a strong demand during the Chinese spring festival in February, and the economic stimulus in China. It is the largest importer of crude.
A Reuters poll of economists and analyst predicted that the average Brent crude price would be $82.56 a bar this year compared to the average $82.17 in 2023. They expect global tensions will remain, but the demand to be capped due to weak global growth.
Prices at the pumps could increase as a result of the rise in wholesale oil prices.
The Iranian state media reported on Monday that the Alborz destroyer had crossed the Bab-el-Mandeb Strait and entered into the Red Sea. They did not give any details about its mission, but only said that it conducted periodic operations in the Red Sea to secure shipping lanes.
The US has said that it sank three boats which were targeting a container vessel in the Red Sea.
US helicopters fired on four boats that were attacking a Maersk-owned commercial vessel from Houthi controlled areas in Yemen. Maersk announced on Sunday that its crew had been saved and that it would suspend all shipping in Red Sea for 48-hours.
The latest in a series of attacks that has led to some shipping companies abandoning the Red Sea route.
This month , a Royal Navy destroyer took part in international efforts to prevent attacks on cargo vessels in the Red Sea. HMS Diamond was part of a US-led taskforce, which included American and French warships.