BP Joins Growing Number of Companies in Stopping Red Sea Transits

Oil major BP joined the growing list of shipping companies that are suspending their operations passing through the Red Sea and Suez Canal as the attacks continued off the coast of Yemen. World oil markets reacted to the news as shipping experts have warned of the potential for growing delays and an impact on global supply chains due to the disruption of shipping operations.

The price of oil reversed a multi-day decline jumping one to two percent on world markets Monday morning after BP reported that it was implementing a “precautionary pause,” for all of its vessels sailing through the Red Sea and Suez Canal due to the “deteriorating security situation,” in the region. By midday, the price of oil was up as much as three percent on the NYMEX exchange and had briefly been back about $74 a barrel after retreating from a high of over $90 a barrel in late October and falling below $69 last week.

Europe’s energy markets were showing the most concern with analysts highlighting the significance of the Suez Canal to the region’s oil supply. S&P Global Market Intelligence calculates that 21.5 percent of Europe’s refined oil imports pass through the Red Sea and 13 percent of its crude oil imports.

Joining BP in announcing the pause on shipping, Euronav today confirmed that it has also decided to avoid the area diverting its ships from the Red Sea. The leading operator of Suezmax tankers last week said it was adding the option into its future contracts to reroute vessels around South Africa. Maersk Tankers last week became the first tanker operator to report that it was adding the clause to its tanker pool operation.

The Suez Canal Authority responded by saying it is monitoring the situation very closely. According to their calculations, 55 ships have diverted to sail around the Cape of Good Hope since November 19. The authority however emphasized that 77 vessels transited the Suez Canal on Sunday, December 17, representing more than four million net tons and part of the just over 2,200 vessels that made the trip in 2023.

Waiting for the international response led by the U.S. to take hold, container shipping lines are also continuing to report they are pausing operations in the area and increasingly beginning to reroute vessels. Hapag-Lloyd after implementing a pause on Friday after one of its vessels was stuck, reported today that the line has decided to reroute several ships via the Cape of Good Hope. “This will be done until the passage through the Suez Canal and the Red Sea will be safe again for vessels and their crews,” said a spokesperson for the container carrier.

“Given the fierce escalation of the war situation in recent days, Evergreen will temporarily suspend Israel import and export service due to rising risk and safety considerations with immediate effect until further notice,” said the carrier based in Taiwan. Other Asian shipping companies including Orient Overseas Container Line, HMM, and Yang Ming, are also reported to have implemented similar pauses or begun rerouting vessels. They are following the lead of Maersk which announced a pause on Friday a day after a missile exploded near one of its vessels and on Saturday CMA CGM and MSC both also reported that they were suspending transits of the Red Sea and the Suez Canal.

Illustrating the potential scope of these decisions on container shipping, Ryan Petersen, Founder and CEO of Flexport, a supply chain management and logistics company, wrote on X that his firm calculates 46 containerships have already been diverted. He said that a further 78 vessels had been paused and were “awaiting orders,” as the pause spreads through the container shipping segment. Petersen said his firm has more than 2,200 TEU impacted by the pause.

Analysts highlight that diverting ships around South Africa adds between 10 days and two weeks typically to their transit with a commensurate increase in fuel costs. Investors however also saw a positive as longer trips are likely to absorb some of the overcapacity in the sector and they initially drove up the stock price of the major container firms.