The problem with the transit of goods through the Red Sea threatens Russia’s interests

Logistics will become more expensive and will affect prices

The increasingly frequent attacks by the Houthis on ships in the Red Sea have not yet affected the plans of Russian oil workers, who continue to actively transport raw materials along this unsafe route. However, for the global cargo transportation market the situation is so dangerous and unpredictable that no one will be left behind. The interests of Russian business will inevitably be affected. The question is – to what extent?

Today, about 12% of international container traffic and 10% of oil shipments are carried out by this waterway, which connects to the Mediterranean Sea through the Suez Canal. According to senior analyst Victor Katona from Kpler, this route is of strategic importance for Russia: more than half of Russian seaborne oil exports, or about 2 million barrels per day (b/d), including Urals and Arctic grades, pass through it.

Meanwhile, at least 12 shipping companies have suspended cargo transit through the Suez Canal due to security concerns. Among them: the Italian-Swiss Mediterranean Shipping Company, the French CMA CGM and the Danish AP Moller-Maersk. Recently their example was followed by the British oil giant BP. And now carriers have to use a much longer route – through the Cape of Good Hope at the southern tip of the Cape Peninsula in South Africa. This leads to higher logistics costs and an increase in cargo delivery times by several weeks.

The first attack on a commercial ship occurred on November 19. The Yemeni group reported the seizure of the bulk carrier Galaxy Leader, owned by an Israeli businessman, sailing under the flag of the Bahamas, along with a crew of 25 people. The Houthis have said they will not release the people until Israel stops fighting in the Gaza Strip. Since then, 17 cases of attacks on civilian ships using drones and anti-ship missiles have been recorded in the Red Sea area. The latest incident occurred on December 18: the tanker Swan Atlantic, flying the flag of the Cayman Islands, came under missile fire off the coast of Yemen. In fact, in this way the Houthis began to put pressure not so much on the Jewish state, but on international business. As a result, the volume of traffic through the Red Sea fell by 35%.

“Of course, logistics will become more expensive for everyone, including Russia,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – Before the introduction of sanctions, logistics routes were built for our country in the most optimal way: oil was supplied from the ports of the Leningrad region to Rotterdam, and from the ports of Novorossiysk to Southern Europe. That is, the shortest route: I shipped it to Rotterdam and quickly returned for a new batch. Accordingly, there was no need for a large number of tankers. The situation changed dramatically after Russia’s forced withdrawal to Asian markets. We ship oil to India even from the Baltic ports, using many more ships, since the logistics arm has significantly lengthened. It’s about the same story with Iraq, Saudi Arabia, the UAE and other countries that were previously the main suppliers of raw materials to Asia, and in 2022 switched to Europe.”

And today the problem with transit through the Red Sea has been added to this. And so there are not enough tankers, and so freight is expensive, and now there is a need to deliver cargo by a long, roundabout route – through the Cape of Good Hope. So far it has affected only Western carriers: ships of Russian, Iraqi, Libyan, and Chinese raw materials companies continue to use the Suez Canal and the Bab el-Mandeb Strait. But who knows what turn events will take in the future? In any case, the increasing cost of logistics will affect oil prices, affecting both suppliers and end consumers.

“However,” argues Yushkov, “you shouldn’t expect extremely high prices, since supply volumes will remain the same. Now, if, for example, they blocked the Strait of Hormuz (a strategically important strait connecting the Persian Gulf in the southwest with the Gulf of Oman in the southeast and further with the open ocean – “MK”), then some of the global oil export volumes would not be able to reach the consumer at all. There would be a shortage on the world market, and the price of a barrel would definitely exceed $100. Now we are talking about a maximum of a few additional dollars to the cost of each barrel.”

It is likely that the current situation in the Red Sea will not last long, but despite its potential short-term nature, it could have a significant impact on the oil market, price dynamics and logistics routes. Typically, this kind of force majeure factors lead to price fluctuations of 2-3% literally in one day (Brent futures have already exceeded $80), notes Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex.