No way out: Second commercial bottleneck threatened by war

One of the few alternatives runs through the Red Sea. Saudi Aramco, the world’s largest oil producer, announced last week that it would divert millions of barrels of crude oil—normally loaded onto ships in the Persian Gulf and passing through the Strait of Hormuz—via pipelines to the western Saudi port of Yanbu on the Red Sea, CNN reports.

Daily oil loadings at this port have already more than doubled this month compared to the daily average last year, according to data from Kpler, a company specializing in trade data analysis.

But now even this “lifeline” is at risk.

On Monday, Iran called U.S. naval assets in the Red Sea “potential targets.”

“The presence of the U.S. aircraft carrier Gerald R. Ford in the Red Sea is considered a threat to Iran,” the Iranian military joint command said, according to the semi-official Fars agency.

“As a result, logistics and support centers backing this naval group in the Red Sea will be regarded as potential targets of the Iranian armed forces.”

Even before the current war began on February 28, the Red Sea “was hardly a bastion of geopolitical stability,” said David Oxley, chief economist for climate and commodities at consultancy Capital Economics.

At the end of 2023, Iran-backed Houthi rebels began attacking ships in the Red Sea in retaliation for Israel’s war against Hamas. The security situation forced shipping companies to reroute vessels around the southern tip of Africa, extending voyages by several weeks and increasing fuel, insurance, and crew costs.

The current regional conflict and “continued hostile activity by Houthi forces against commercial shipping” mean that the threat level in the Red Sea is “significant,” the U.K. Maritime Trade Operations Center said on Monday.

“The group still has the capability and clearly demonstrated intent to carry out attacks at sea in the region,” it warned.

An Israeli source told CNN last week that there are indications militants could launch attacks on Israel, which would be a first since the start of the war.

• Sharp surge in oil prices; catastrophic situation on the market – countries begin introducing restrictions

No way out

The pipeline connecting eastern and western Saudi Arabia can transport up to 7 million barrels of crude oil per day, according to Aramco data, partially offsetting the roughly 15 million barrels per day that would normally pass through the Strait of Hormuz.

However, a resurgence of violence in the Red Sea could also block these redirected flows, further heightening fears of a shortage in the global market and driving prices even higher, analysts told CNN.

“If tankers carrying Saudi oil are attacked in the Red Sea, I think we would then see a significant spike in oil prices,” said Naveen Das, senior analyst at Kpler. “It essentially sends a signal to the market that… all possible export routes for oil are at risk… there is no way out.”

David Oxley of Capital Economics estimates that if violence returns to the Red Sea and “completely traps” oil supply from the region, Brent crude—the global benchmark—could surge to between $130 and $150 per barrel from its current level of around $100.

The longer oil prices remain elevated, the more likely the impact will spill over into the wider global economy, raising costs for consumers—from airline tickets to groceries.

Container ship traffic

By contrast, the impact of any potential attacks in the Red Sea on container ships carrying goods would be limited, as the vast majority of these vessels have already been avoiding the route since late 2023.

Peter Sand, chief analyst at Xeneta, estimates that about 90 percent of container traffic that previously passed through the Red Sea has been rerouted around the Cape of Good Hope in South Africa.

In early January, Danish shipping giant Maersk announced it would partially resume sailing through the Red Sea, calling it “the fastest, most sustainable, and most efficient route” between Asia and Europe. However, by early March, it suspended the route again due to security risks in the Middle East.

Speaking on the shipping industry overall, Juda Levin, head of research at logistics company Freightos, told CNN: “The current situation has pushed back the timeline for a full return of maritime traffic in the Red Sea.”

Similarly, Sand said many shipping companies are likely to avoid the Red Sea until the end of the year, noting that insurance costs for vessels on that route have risen sharply since the start of the war.

“Even though we haven’t seen direct attacks by Houthi rebels since the initial strikes… the threat alone is enough to literally keep container ships away,” he concluded.