Despite Houthi Attacks, Oil Tankers Brave the Red Sea: A Balancing Act of Risk and Reward

The Red Sea, a vital artery for global oil transportation, has become a hotbed of tension in recent weeks. Houthi militants, aligned with Iran, have launched attacks on vessels traversing the waterway, raising concerns about disruptions to oil flows and spiking shipping costs. However, despite the heightened risk, many oil tankers continue to brave the Red Sea, driven by a delicate balance of economic considerations and safety concerns.

A Resilient Flow:

• A Reuters analysis of vessel tracking data revealed that oil tanker traffic in the Red Sea remained surprisingly stable in December, even though container ship movements plummeted by 28%. This suggests that most oil shippers are opting to navigate the Red Sea despite the Houthi attacks.
• The main reason for this resilience is the significant cost advantage of the Red Sea route compared to the alternative around Africa via the Cape of Good Hope. Using the Red Sea can shave off a staggering 3,700 nautical miles from a journey like Singapore to Gibraltar.
• While chartering rates have doubled since the attacks began, the cost of navigating the Red Sea still pales in comparison to the longer detour. As Michelle Wiese Bockmann, a shipping analyst at Lloyd’s List, aptly put it, “So, you’re going to try and go through.”

Selective Targeting:

• It’s important to note that the Houthis haven’t primarily targeted oil tankers. Their attacks have been focused on container ships and vessels bound for Israel, suggesting a strategic agenda rather than a desire to cripple global oil flows.
• This selectivity has further emboldened oil companies to continue using the Red Sea. Major players like Chevron and Reliance have confirmed their ongoing operations in the region, highlighting their confidence in the relative safety of oil tanker passages.

Diversion and Uncertainty:

• Not all companies are taking the same risk. Some, like BP and Equinor, have opted to completely suspend Red Sea transits and reroute their vessels around Africa. This cautious approach reflects their heightened risk tolerance and underscores the lingering uncertainty surrounding the situation.
• The impact of these diversions is still unfolding. While East-to-west disruptions have primarily affected European imports of diesel and jet fuel, West-to-East diversions are impacting some European fuel oil and gasoline shipments to other regions.

Looking Ahead:

• The ongoing tension in the Red Sea casts a shadow of uncertainty on the future of oil flows through this crucial waterway. The Houthis’ intentions and the international community’s response will be key determinants of the situation’s trajectory.
• However, the resilience of oil tanker traffic so far suggests that economic pragmatism may continue to trump security concerns for many players. The Red Sea’s allure as a cost-effective route is undeniable, and navigating its current turmoil could become a calculated gamble worth taking for some oil companies.

In conclusion, the Red Sea has become a microcosm of the complex interplay between risk and reward in the global oil trade. While Houthi attacks have undeniably added a layer of danger, the economic advantages of the Red Sea route continue to entice many oil tankers to brave the troubled waters. As the situation evolves, it will be fascinating to see how this delicate balancing act plays out, with far-reaching consequences for global energy markets.