Some shipping is avoiding the Red Sea again after Yemen-based Houthi forces ended a brief ceasefire, but few returned to the route in the first place.
Already one clean products tanker that loaded gasoil in the Mideast Gulf in the second week of March has diverted away from the Red Sea route, vessel tracking data show. The Sti Guard, which loaded 530,000 bl of gasoil from Qatar's Ras Laffan plant on 10 March, rerouted on 14-15 March to avoid the Gulf of Aden and Bab el-Mandeb strait. The ship is now taking the longer voyage around South Africa to discharge in northwest Europe in the second half of April.
The diversion comes after the Houthis announced earlier this month that they were restarting attacks on commercial shipping in retaliation for Israel preventing humanitarian aid deliveries from reaching Gaza. The US reacted to the announcement by launching a series of airstrikes targeting Houthi forces in Yemen from 15 March. The Houthis claim to have attacked US military ships in response.
Yet the swift increase in the threat level for ships transiting the Bab el-Mandeb strait between Yemen and Somalia is likely to have far less impact on oil trade than when the Houthis first began attacking commercial shipping in late 2023. Much of the shipping that avoided sailing past Yemen last year did not return when the Houthis declared their ceasefire in January.
Around 275,000 b/d of clean products sailed through the Bab el-Mandeb strait in February towards the Suez Canal, up from 90,000 b/d in January, after the Houthis announced a reduction in vessel attacks. But this was still substantially below the 1mn-1.2mn b/d that was moving on that route before the Houthi strikes began. On the whole, the return to the Red Sea has been slow, as the cost of additional insurance can be enough to wipe out any savings made from the shorter journey, meaning that there are only a few vessels that could divert back around the Cape of Good Hope.
Cape fears
Taking the Bab el-Mandeb/Suez Canal route cuts out 16 days of voyage time from the Saudi port of Ras Tanura to Rotterdam. But the financial benefits are less clear-cut. Shippers would save $700,000 in vessel hire and fuel costs compared with the longer Cape of Good Hope route. But transiting the Suez Canal requires a $525,000 fee. And shippers also have to pay an extra war risk insurance premium of around $420,000 — 0.4pc of the hull and machinery value of the tanker — to go past Yemen and run the Houthi gauntlet. Even with a 50pc no-claims discount on this war risk premium, the transit and extra insurance fees still wipe out any savings made on the shorter route.
At the same time, the economics of shipping diesel from Asian refineries to Europe are becoming less favourable. Singapore 10ppm gasoil swaps have climbed to trade $23/t below Ice Rotterdam gasoil futures from discounts of $30-35/t in late February (see graph). The limited financial profit could mean that charterers will not be anxious to return to using the Suez Canal and those that have done may quickly gravitate back to taking the longer way around southern Africa without suffering any particular financial impact.
Some shippers are still happy to take the shorter route, despite the heightened threat of attack. At least two clean products tankers, the Al Dasma and Sea Star, remain on track to transit the Bab el-Mandeb strait. And tankers carrying Urals crude from Russia's European ports to India are likely to continue to move through the Red Sea. Of the 53 tankers currently transporting Urals, just one is going around South Africa, Kpler data show. It is possible some vessels which recently loaded Urals in the Baltic and Black Sea could still take the cape route.
