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Red Sea Oil Route Threatened by Iran, Houthi Attacks

Attacks on commercial vessels have closed the Strait of Hormuz, prompting Saudi Aramco to divert oil via a Red Sea pipeline. However, Iran and Houthi rebels now threaten this alternative route, raising risks of global supply disruptions. Analysts predict Brent crude could spike to $130-150 per barrel if the Red Sea is blocked. Meanwhile, over 90% of container ships have already rerouted around Africa due to security concerns and high insurance costs, with no immediate return expected.

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Red Sea Oil Route Threatened by Iran, Houthi Attacks

Recent attacks on commercial vessels in the Middle East have virtually closed the critical Strait of Hormuz to oil tankers, forcing producers to seek alternative routes. One key alternative via the Red Sea is now under threat from Iran and Houthi militants, potentially disrupting global oil supply and driving prices higher.

Closure of Strait of Hormuz

Attacks on commercial ships in the Middle East since February 2024 have effectively shut down the Strait of Hormuz for oil tankers, upending the oil market. Saudi Aramco, the world's largest oil producer, has redirected millions of barrels of crude daily through a west-east pipeline to the Red Sea port of Yanbu.

  • Daily oil loads at Yanbu port have more than doubled this month compared to last year's average, based on data from Kpler, a trade analytics firm.
  • The pipeline can transport up to 7 million barrels per day, offsetting some of the 15 million barrels typically flowing through Hormuz.

New Threats to Red Sea Route

Even this lifeline is now at risk. Iran has labeled U.S. naval facilities in the Red Sea as "potential targets," citing the presence of the USS Gerald R. Ford carrier group. Meanwhile, Iran-backed Houthi rebels have attacked ships in the Red Sea since late 2023 in retaliation for the Israel-Hamas war.

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  • The UK Maritime Trade Operations center warns the threat level in the Red Sea remains "substantial" due to Houthi capabilities and intent.
  • An Israeli source indicated militants might launch attacks on Israel, a potential unprecedented escalation.

Potential Oil Price Spike

Analysts warn that renewed violence in the Red Sea could block diverted oil flows, exacerbating supply fears and pushing prices higher.

  • If Saudi oil tankers are attacked, Brent crude could surge to $130-$150 per barrel from around $100, according to Capital Economics' David Oxley.
  • Prolonged high oil prices would ripple through the global economy, raising costs for air travel, groceries, and more.

Container Shipping Already Diverted

In contrast, container ships have largely avoided the Red Sea since late 2023, minimizing direct impact from new threats.

  • Approximately 90% of container capacity that used the Red Sea has been rerouted around Africa's Cape of Good Hope, per Xeneta's Peter Sand.
  • Maersk briefly resumed Red Sea transit in January but suspended it in March due to security risks.
  • Insurance costs for Red Sea routes have risen substantially, likely keeping carriers away for the rest of the year, says Freightos' Judah Levine.
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