Illustration; Source: Maersk

With Red Sea ensnared in security woes, ten nations come together to untangle it, after BP pumps the brakes on oil & gas trade

As security woes in the Red Sea reach new highs amid a flurry of maritime incidents, BP has joined the fast-growing line of energy and shipping giants turning their back on the trade in these waters at least for the foreseeable future due to perils that lie in wait. While Yemen’s Huthis intensify their attacks on oil tankers and other commercial vessels in the Red Sea, Bab al-Mandeb, and the Gulf of Aden, multiple nations have now bonded together to tackle these security concerns.

Illustration; Source: Maersk

As the ongoing conflict between Israel and Hamas shows no signs of stopping, things are getting increasingly more complicated throughout the region. The impacts of this conflict have spilled over into the Red Sea where the Houthis are employing maritime retaliation tactics against global shipping companies with ties to Israel, albeit those with no such bonds are also being affected. With supply costs going through the roof due to the Red Sea crisis, the number of companies, which are halting their shipping activity through this maritime route is growing quickly.

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With the erosion of the safety and security net firmly entrenched in its mind after recent Houthi attacks, BP decided to become the most recent firm to temporarily suspend all transit through the Red Sea on Monday, December 18, 2023.

While explaining that the safety and security of its people and those working on its behalf was its priority, BP underlined: “In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea. We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”

As a result of the turmoil and investors’ fears about further disruptions and supply cost hikes, Brent crude rose 1.8% to $77.95 a barrel and U.S. West Texas Intermediate crude price jumped 1.5% to $72.47 on December 18. Equinor also revealed on the same date that it had been forced to reroute some vessels that had been on their way to the Red Sea.

After examining the situation, Goldman Sachs is convinced that the disruption to energy flows in the Red Sea is not likely to have considerable effects on crude oil and liquefied natural gas (LNG) prices. The reason behind this assessment lies in the fact that these redirection moves imply that the security situation is unlikely to directly impact production negatively.

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BP’s decision comes on the heels of similar moves made by major shipping companies, including Taiwan’s Evergreen, which confirmed it was pausing its Israeli cargo shipments with immediate effect. Another shipping giant, Frontline, also joined the Red Sea exodus movement while explaining that it was rerouting ships and would allow only business that could be routed via South Africa’s Cape of Good Hope.

Red Sea trade in peril

With shipping stocks on the rise in response to security challenges in the Red Sea, analysts have warned about potential ripple effects through global supply chains, which could boost the costs of moving goods further, as about 15% of world shipping traffic is carried out through the Suez Canal. This is hailed as the shortest shipping route between Europe and Asia. Many shipping insurance market firms have already taken steps to extend the potential high-risk zone in the Red Sea, which has upped the ships’ premiums ante.

These actions turn the maritime traffic transit through the Suez Canal uneconomical for a significant number of players in the shipping market. While contemplating the possibility of all existing and anticipated rerouting being sustained, Richard Meade, Editor in Chief at shipping journal Lloyd’s List, told CNBC: “You are going to see some fairly seismic activity in terms of the implications for supply chains.”

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Al Jazeera reports that one of the Houthis’ leaders, Ali al-Qahoum, said the group wanted to “assure all ships heading to all ports of the world apart from Israeli ports that they will suffer no harm,” but also issued a warning that “all ships heading to Israeli ports” would continue to be targeted until enough humanitarian aid had been given to the people in the Gaza Strip.

As the attacks on cargo ships, tankers, and other commercial vessels transiting the Red Sea keep escalating, the disruptions to the supply chain are becoming more apparent, as more than 100 vessels are believed to have either delayed or rerouted their voyages rather than take a risk to transit the Red Sea. Iran has been accused of arming the Huthis, thus, many are placing the blame on its shoulders for the most recent maritime security issues.

At the onset of the latest quagmire in the Red Sea, the Huthis announced they had launched an attack on two “Israeli-linked” vessels in a so-called show of solidarity with Gaza. The group’s most recent attempt to put pressure on Israel – or the world which would in turn pressure the Middle Eastern country – to tone down and stop its war with Hamas, entails the attack on the Norwegian-owned Swan Atlantic vessel and another one which is believed to be the MSC Clara.

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While Houthis claim they have carried out a “military operation against two ships linked to the Zionist entity” using drones, Inventor Chemical Tankers, which is the Swan Atlantic’s owner, is adamant that this ship was carrying biofuel feedstock from France to Reunion Island. While explaining that the vessel has “no Israeli link,” the ship owner confirmed the crew were unharmed but the same cannot be said for the vessel, as it sustained limited damage.

The shipping industry giants: Denmark’s A.P Moller-Maersk, the Italian-Swiss Mediterranean Shipping Company (MSC), France’s CMA CGM, Germany’s Hapag-Lloyd, and Hong Kong’s Orient Overseas Container Line (OOCL), all took steps to suspend trading on their Red Sea trade routes to prioritize the safety of their vessels, crews, and cargo.

In an article titled: ‘Red Sea attacks on liner majors’ vessels highlight crucial link between world peace and just energy transition,’ Offshore Energy’s Jasmina Ovcina Mandra, Senior Editor at Green Marine, writes that the decarbonization moves announced at COP28 to transition away from fossil fuels are “overshadowed by global geopolitical instabilities and ongoing wars, which beyond the visible and heartbreaking human cost are inflicting a profound toll on the environment.”

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While reviewing the Red Sea crisis with its “significant economic ramifications,” Ovcina Mandra outlined: “Houthi militants are leveraging this economic disruption as a bargaining chip, pressuring the international community to address the conflict. Disruptions to the flow of goods, including vital humanitarian aid, highlight the urgency of finding a resolution and addressing the dire humanitarian situation in conflict-affected areas.

“Furthermore, by disrupting commercial activities in a critical maritime region, they seek to compel the international community to actively engage in mediating a solution to the conflict, emphasizing the need for diplomatic efforts to end the hostilities.”

Ten-nation strong initiative to tackle security risks

While the situation in Gaza has certainly gotten out of hand and continues to sink fast into the quicksand of humanitarian despair, no proper measures have been put into place to prevent further catastrophe from unfolding, as the children’s death toll keeps rising past any so-called alarming rates. Some efforts have been made to try to lessen the suffering of people and the calls for a ceasefire are gaining ground around the globe with talks underway with both Israel and Hamas.

However, Israel’s reluctance to end the conflict – as it continues to view Hamas as a threat it needs to annihilate – has put concrete actions required to deal with the devastating consequences of this conflict on ice, endangering the very lives of the hostages the government claims to want back. This was hammered home by the recent deaths of three hostages, who were killed by the Israel Defence Forces (IDF), according to BBC.

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As the world continues to watch this disaster from the sidelines, mediation efforts to find a solution to end the conflict have not borne fruit so far. A two-state solution appears to be the only reasonable and fair resolution. Every innocent life must matter regardless of ethnicity, skin color, gender, age, religion, political affiliation, and class.

Given the proportions of the calamitous effect this conflict is having on civilians, decisive action is needed to bring not only the hostages that have been taken home to their families but also the long-awaited peace to the entire region while ensuring the prevention of future atrocities between the deadly players in this high stakes, life-destroying chapter of human history in the Middle East.

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Despite no end in sight for the Israel-Gaza crisis, the Red Sea trade situation may settle sooner than expected as tactical moves are afoot to come to grips with this challenge. To this end, the United States and nine other nations have decided to join forces and bring Operation Prosperity Guardian to life, tasked with quelling the Huthi missile and drone attacks.

Lloyd J. Austin III, U.S. Secretary of Defense, highlighted: “The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners, and violates international law. The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade.

“Countries that seek to uphold the foundational principle of freedom of navigation must come together to tackle the challenge posed by this non-state actor launching ballistic missiles and uncrewed aerial vehicles (UAVs) at merchant vessels from many nations lawfully transiting international waters.”

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While explaining that the Red Sea crisis is “an international challenge that demands collective action,” the U.S. Secretary of Defense announced the establishment of Operation Prosperity Guardian as “an important new multinational security initiative.” Austin explained that the initiative was part of the Combined Maritime Forces and the leadership of its Task Force 153, which focuses on security in the Red Sea.

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Operation Prosperity Guardian encompasses the United States, the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain. These ten nations will work together to address security challenges in the southern Red Sea and the Gulf of Aden.

The main objective behind this initiative is to ensure freedom of navigation for all countries through the Red Sea, Bab al-Mandeb, and the Gulf of Aden and bolster regional security and prosperity.

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Disclaimer: The author’s views expressed in this article do not necessarily reflect Offshore Energy’s editorial stance.



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