Tankers South

A week ago, Reuters cheerfully reported that tanker traffic through the Red Sea remained largely unaffected by Houthi attacks on ships in the area that began in November in response to Israel’s bombing of Gaza.

That was then. Now, tankers carrying oil and fuel — and LNG — are being rerouted en masse following an exchange of missile strikes between the Houthis and something called the Combined Military Forces.

The name suggests a broad coalition that has been talked about a lot but in fact consists of “both the US and UK navies”, per Bloomberg and simply “the U.S. and the UK”, per Reuters. Said navies apparently warned shippers to steer clear of the Red Sea for a few days and they are heeding the advice. It’s not just tankers, of course. Ships are going south and prices are rising. For everything. So are emissions.

Last week, S&P Global reported that container freight rates for vessels carrying goods to Europe had spiked to the highest in 15 months as the longer journey from Asia to Europe around Africa tightens vessel availability. It might just be the beginning — but not one of a beautiful friendship.

Per the FT, freight rates for a standard container moving from China to Northern Europe have gone up from $1,500 in November to over $4,000 in January. But that’s okay because $4,000 is so much less than the $14,000 per container traders saw during the pandemic. Sure, it could always be worse but how this is any consolation I’ve no idea. And it may well get worse.

"The fear in the oil market is that the region is on an unpredictable escalating path where at some point down the road supply of oil will indeed in the end be lost," Bjarne Schieldrop, a commodity analyst with Swedish bank SEB told Reuters on Friday, for a story that listed several tankers that were redirecting away from the Red Sea.

Also on Friday, Brent crude hit $80 per barrel for a little while before sliding back towards $78. Traders must not be nervous enough yet. Must be all that safe oil supply from the United States that is moving freely across the Atlantic to Europe and is apparently perceived as unlimited. Which, alas, it isn’t.

Yet oil is only part of this latest disaster equation. Since all vessels are abandoning the shortest route between the East and the West, it’s everything that is getting more expensive, including solar panels, by the way.

These higher prices are coming hand in hand with higher emissions due to the longer ship journeys and some companies’ decision to switch from ships to planes. Let’s admit it, life doesn’t get much more ironic than that.