- The Red Sea is a vital shipping route for oil and gas trade between the Middle East, Europe and Asia
- Houthi rebels in Yemen have intensified attacks on commercial vessels in the Red Sea since November 2023
- Major oil and gas companies like Shell and BP have suspended their shipments through the Red Sea to avoid the risk of attacks
- This has reduced the supply of oil and gas to the global market, leading to higher prices and lower demand
- The alternative route around Africa is longer, more expensive and more polluting
- The Red Sea crisis is adding to the challenges faced by the oil and gas industry amid geopolitical tensions, climate change impacts and energy transition
The Red Sea is one of the most important waterways for global trade, especially for the oil and gas industry. About 12% of global trade passes through the Red Sea, including 30% of global container traffic and a significant share of oil and gas shipments from the Middle East to Europe and Asia.
However, the Red Sea has become a hotspot of conflict since November 2023, when Houthi rebels in Yemen declared war on Israel and started attacking commercial vessels in the lower Red Sea. The Houthis, who control the west of Yemen, including its Red Sea coast, are aligned with and supplied by Iran, but are politically independent.
The attacks have targeted ships of various nationalities and types, including oil tankers, LNG carriers and container ships. Some vessels have been hijacked, damaged or delayed by the Houthis, who claim they are only targeting those heading to Israeli ports.
The attacks have prompted major oil and gas companies like Shell and BP to suspend their shipments through the Red Sea until the situation improves. According to UNCTAD, container ship transits through the Red Sea are down 67% compared to a year ago, while LNG carrier transits have stopped altogether since 16 January 2024.
The suspension of shipments through the Red Sea has a significant impact on the global oil and gas market, as it reduces the supply of oil and gas from the Middle East to Europe and Asia. This could lead to higher prices and lower demand, especially in the winter season when energy consumption is high.
The alternative route for oil and gas shipments is to go around South Africa’s Cape of Good Hope, which is much longer, more expensive and more polluting than the direct route through the Red Sea. According to UNCTAD, this adds about 10 days and $300,000 to $400,000 per voyage for a typical container ship. For an LNG carrier, it adds about 15 days and $1 million per voyage.
The longer route also increases greenhouse gas emissions from shipping, which already account for about 3% of global emissions. According to UNCTAD, rerouting all container ships around Africa would result in an additional 23 million tonnes of CO2 emissions per year.
The Red Sea crisis is adding to the challenges faced by the oil and gas industry amid geopolitical tensions, climate change impacts and energy transition. The industry is already facing disruptions from the war in Ukraine, which has curtailed grain shipments via the Black Sea; the severe drought afflicting the Panama Canal; and the rising demand for renewable energy sources.
The oil and gas industry needs to adapt to these changing circumstances and find ways to ensure the security, efficiency and sustainability of its supply chains. This may require investing in new technologies, diversifying sources and routes, enhancing cooperation with other stakeholders and supporting peace efforts in conflict zones.
The oil and gas industry in the Red Sea area offers various job opportunities for offshore and marine specialists, petroleum engineers, control room operators, and liquefied natural gas (LNG) operators. However, the ongoing crisis has affected the employment prospects, work conditions, and safety in the sector. According to some estimates, a prolonged crisis could push global inflation up by 0.5 percentage points and reduce GDP growth by 0.4 percentage points, impacting the demand and profitability of oil and gas products. Moreover, the crisis has increased the risk and cost of shipping, as well as the uncertainty and volatility of energy prices, especially in Europe, where 12% of seaborne oil and 8% of LNG pass through the Suez Canal. These factors could lead to reduced hiring, lower wages, and higher turnover in the oil and gas industry in the area.