Oil behemoth BP is joining an escalating number of shipping companies in suspending operations through the Red Sea due to intensifying attacks by Iran-supported Houthi rebels on sea vessels.
This significant shift in trade routes comes at a time when oil and gas prices are already high. While they have marginally reduced from recent peaks, they still linger at historical heights. Any major disruption in the smooth flow of shipping could potentially escalate the existing inflation, striking a blow to global trade and consumer pockets.
The Red Sea is a critical trade route with roughly 17,000 ships passing through annually, an enormous 10% of the world's commerce. Any disruption to this could invariably lead to increased oil and gas prices.
This concern comes in the wake of falling inflation and dipping gas prices. Around $1 trillion in annual trade necklaces the Suez Canal. Disruptions along this route could force shipping vessels to reroute around Africa, adding thousands of miles to their journey. This extra mileage would inevitably inflate costs for shipping companies, which would likely trickle down to consumers with higher gasoline prices and inflated retail prices.
As we head into the holiday season, this disruption spells a potential nightmare for consumers. Redirecting ships under the Cape of Good Hope, at the southern tip of Africa, could potentially add an extra 7 to 20 days to shipping time, depending on various factors. These delays could increase costs and time, and these are likely to ripple through to consumers unless the issue is addressed swiftly.
The international community is reportedly mobilizing to address this pressing issue, with the impending announcement of an international task force called Operation Prosperity Guardian. The operation aims to safeguard shipping from these Houthi attacks in the Red Sea. The operation is not solely focused on oil and gas but reaches out to protect a wide array of goods that could face disruption. The speed and efficacy of these moves will certainly affect the timeline and impact of these shipping disruptions.
