Red Sea Crisis Could Impact Oil Prices Worldwide

Houthi rebels have been attacking shipping vessels in the Red Sea, and that could soon affect oil prices across the world.

The rebels, based out of Yemen and backed by Iran, have launched missile and drone attacks on ships who are traveling through the Red Sea. That has caused many energy companies such as BP as well as other shipping companies that are responsible for transporting crude oil to no longer send tankers through that body of water.

The ships can take other routes to get to their end destinations, but doing so adds a lot of cost and causes massive delays. In the end, that could result in the prices of oil to spike across the world.

Since the middle of this month, Brent crude — which is considered to be the international benchmark for oil — has increased roughly 8%. It now sits at more than $79 per barrel.

Despite that, the price of Brent crude is still well below where it was as recently as early October, when it was more than $90 per barrel.

The Red Sea is a major route for shipping in the energy industry. The sea is flanked by the Bab el-Mandeb Strait at one end and the Suez Canal at the other.

Ships that originate in countries in the Persian Gulf such as Saudi Arabia and Iraq typically travel on the Red Sea en route to Europe. These vessels have increased in importance ever since Russia invaded Ukraine back in 2022, since many European countries have placed bans on importing products from Russia.

That has made these countries much more dependent on crude oil as well as the refined products it can make from Asia and the Middle East.

Goldman Sachs has estimated that roughly 7 million barrels of oil and oil products make their way through the Bab el-Mandeb Strait every day. And the Suez Canal is used as a vital route for U.S. ships companies that export liquefied natural gas to Asian countries.

If ships can’t travel through the Red Sea, they will typically travel around the Cape of Good Hope in Africa, but that adds roughly two weeks to the trips. In addition, shipping rates could increase by $1 per barrel for crude oil and as much as $4 per barrel for refined products, according to Goldman Sachs.

The New York Times reported recently that it’s unlikely that companies will shut down wells as a result of the Houthi rebels’ attacks. Instead, companies will likely reroute their shipments and just live with the delays.

What this could definitely do, though, is cause oil prices to spike. That’s bad news for many people, especially since the price of crude oil had been dropping precipitously over the last few months.

In response to the attacks, the U.S. said they would step up their military presence in the Red Sea, and be joined by some other countries such as Bahrain and the United Kingdom.