- By Lora Jones, Jonathan Josephs & Faisal Islam
- BBC news
Oil prices rose 4% after the US and UK launched strikes in Yemen because of recent attacks by Houthi rebels on ships in the Red Sea.
Brent crude oil hit $80 a barrel for the first time this year as Iran-backed rebels vowed to retaliate against military action by Western powers.
Although prices are up, they are still below the highs reached when Russia invaded Ukraine.
But the UK government has laid out scenarios showing how further disruption could hit the economy.
The BBC understands that the Treasury has modeled outcomes that include crude oil prices rising by more than $10 a barrel and natural gas prices rising by 25%.
On Friday, Brent crude – the international benchmark for oil prices in much of the world – hit $80.71 a barrel before falling slightly, while US West Texas Intermediate crude rose 2.79% to 74.03. USD.
The British government fears that ongoing attacks on shipping in the Red Sea could weigh on the British economy, where growth remains fragile.
Higher energy prices risk sparking inflation just as it begins to slow. Meanwhile, the cost of transporting containers on ships has skyrocketed, meaning companies may choose to pass these costs on to consumers.
Chancellor Rishi Sunak said the attacks had caused “major disruption to the vital trade route and [higher] Commodity prices”.
But Simon French, chief economist at Panmure Gordon, points out that energy prices are still significantly lower than they were four months ago.
“At this level, it is effectively deflationary to the UK economy,” he said.
He added that when the Bank of England makes its next interest rate decision in February, oil prices are still likely to be around 20% lower than they were in the autumn.
More on the US-UK strike in Yemen
Houthi rebels in Yemen have stepped up attacks on commercial ships since the start of the Israel-Hamas war in October. The US says 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 channel dividing Eritrea and Djibouti on the African side and Yemen on the Peninsula Arabic.
Ships often follow this important trade route from the south to reach Egypt’s Suez Canal in the north. Instead, many companies are now sending ships around the Cape of Good Hope, a route that adds at least 10 days of travel.
On Friday, shipping data showed at least four tankers had changed course since the overnight strike by the US and UK.
Danish fuel tanker Torm also said it had stopped allowing its fleet to pass through the southern Red Sea, while Intertanko, which represents nearly 70% of all oil, gas and chemical tankers international trade, is now urging its members to avoid the Bal region. al-Mandab continuously for several days and turned off their transmitters.
Currently, about a quarter of the world’s shipping containers are being diverted.
According to the White House, about 15% of global seaborne trade passes through the Red Sea. This includes 8% of global grain, 12% of seaborne oil and 8% of the world’s liquefied natural gas.
Vincent Clerc, chief executive of shipping giant Maersk, told the BBC that “significant disruption” to global trade was being felt “all the way down to the end consumer”.
Some companies say they have seen or are expecting a knock-on effect:
- Automobile manufacturer Stellantis is using several air freight solutions to avoid disruption
- Tesla has suspended most car production at its Berlin factory
- Volvo Cars will suspend production for three days next week at its factory in Ghent, Belgium
- Tesco’s boss has warned it “could increase the prices of some items”
- Next said delays in delivery may arise
- Ikea said supplies may be affected
- Danone said transit times for its shipments have increased
The Houthi group has declared its support for Hamas and said it is targeting ships bound for Israel, although it is unclear whether all of the ships attacked were actually headed for Israel.
As a result of the attacks, Maersk and several other major shipping lines around the world have avoided the vital route for global trade because they prioritize the safety of their crews.
“We have ships that are under fire,” Mr. Clerc said. We have colleagues whose lives are at risk when this happens and we simply cannot justify sailing through these dangerous areas in the current situation.”
He said the longer route around Africa was draining capacity from the global shipping system in the short term, adding to a ship’s journey time from seven days to two weeks, as well as an additional 1 million USD for fuel alone.
Sea freight rates hit record highs during the pandemic. Since attacks on ships began in the region, container and cargo shipping prices have skyrocketed.
According to Drewry World Container Index, the price of a 40ft 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.”