- By Lora Jones, Jonathan Josephs and Faisal Islam
- ` News
January 12, 2024, 02:21 GMT
Updated 1 hour ago
image source, Getty Images
Oil prices rose 4% after the US and Britain launched strikes in Yemen over recent attacks by Houthi rebels on ships in the Red Sea.
Brent crude hit $80 a barrel for the first time this year as Iran-backed rebels vowed to retaliate against military actions by Western powers.
Although the price increased, it is below the highs reached when Russia invaded Ukraine.
However, the British government fears that if disruptions to freight traffic extend, there could be another energy shock.
According to the `, the Treasury has modeled scenarios including a rise in crude oil prices of more than $10 a barrel and a 25% rise in the price of natural gas.
On Friday, Brent crude – the international benchmark for oil prices across much of the world – hit $80.55 a barrel, while U.S. West Texas crude rose 2.71% to $74.73.
The British government fears that ongoing attacks on shipping in the Red Sea could weigh on the British economy, whose growth remains fragile.
Higher energy prices risk stoking inflation just as it has begun to slow. Meanwhile, the cost of transporting containers on ships has skyrocketed, meaning companies could choose to pass these costs on to consumers.
Prime Minister Rishi Sunak said the attacks had “caused significant disruption to a vital trade route”. [higher] Prices of goods”.
But Simon French, chief economist at Panmure Gordon, pointed out that energy prices were still significantly lower than four months ago.
“At this level it is actually quite disinflationary for the UK economy,” he said.
He added that oil prices are still likely to be around 20% lower than they were in the autumn when the Bank of England makes its next interest rate decision in February.
More on the attacks between the USA and Great Britain in Yemen
Houthi rebels in Yemen have stepped up attacks on commercial vessels since the war between Israel and Hamas began in October. According to the USA, there have been 27 attacks in the Red Sea since mid-November.
The group has used drones and missiles against foreign ships transporting goods through the Bab al-Mandab Strait – a 20-mile-wide canal that separates Eritrea and Djibouti on the African side and Yemen on the Arabian Peninsula.
Ships usually take this important trade route from the south to reach Egypt's Suez Canal further north. Many companies instead send ships around the Cape of Good Hope, a route that involves a journey of at least ten days.
On Friday, shipping data showed that at least four oil tankers had changed course since the overnight strikes by the United States and Britain.
Currently, about a quarter of the world's shipping containers are being diverted.
According to the White House, about 15% of global maritime trade passes through the Red Sea. This includes 8% of the world's grain, 12% of the world's marine oil and 8% of the world's liquefied natural gas.
Vincent Clerc, chief executive of shipping giant Maersk, told the ` that “significant disruptions” to global trade were already being felt “right through to the end consumer”.
Several companies have stated that they have already seen or expect a domino effect:
- Tesla has halted most automobile production at its Berlin factory due to the disruption
- Tesco boss warned that 'costs of some items could rise'
- Next stated that there could be delays in delivery
- Ikea said deliveries could be affected
- Danone said that delivery times for its shipments had increased
The Houthi group has declared support for Hamas and said it is targeting ships en route to Israel, although it is not clear whether all of the ships targeted were actually en route to Israel.
As a result of the attacks, Maersk and several other major shipping companies worldwide are avoiding a key route for global trade as they prioritize the safety of their crews.
“We have ships that are being shot at. We have colleagues whose lives are at risk when this happens and we simply cannot justify driving through these danger zones as the situation is at the moment,” said Mr Clerc.
He said the longer route around Africa drained short-term capacity from the global shipping system, added seven days to two weeks to ship journeys and cost $1 million (£783,000) more in fuel alone.
Meanwhile, Michelle Wiese Bockmann, an analyst at Lloyd's List Intelligence, a company that advises the shipping industry, told the ` that some ship owners continue to make the same trips through the Red Sea simply because their contracts do not allow them to do otherwise.
During the pandemic, tariffs for transporting goods by sea reached record highs. Since the attacks on ships in the region began, prices for both container and freight transport have risen again.
According to the Drewry World Container Index, the price of a 40-foot container reached $3,072 on January 11, before the US and UK launched attacks on Houthi targets in Yemen.
“And so it has a real impact on people around the world in their daily lives.”
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