One of the most important shipping routes in the world that connects Africa, Asia, and Europe is the Red Sea. It represents a strategic international maritime artery that has changed the global oil map. The recent disruptions in the Red Sea have led to a shift in the routes of global oil tankers to the Cape of Good Hope route in South Africa instead of crossing the Suez Canal. They are now taking old maritime routes, which increases the journey time by a whole week and adds an additional distance of up to 3,500 nautical miles. This has resulted in higher insurance costs and shipping fees by air and land.
According to Bloomberg, the crisis has led to the emergence of two major oil markets in the world. One is centered around the Atlantic Basin, including the North Sea and the Mediterranean Sea, and the other includes the Arabian Gulf, the Indian Ocean, and East Asia.
There is still oil transportation between these regions, albeit through the longer and more costly journey around the southern tip of Africa. However, recent purchasing patterns indicate a separation of these markets.
Market Share Division and Route Shifts:
Traditionally, Europe heavily relied on Middle Eastern oil, particularly after the ban on Russian oil imports. However, recent purchasing movements, as tracked by Bloomberg, indicate that Europe has been focusing on oil from the North Sea (Norway), Guyana, and the United States in the past month, with a decrease in imports from Iraq, for example.
Reports also suggest an increase in demand in East Asia for oil from the west, with a growing demand for Murban crude from Abu Dhabi, while flows from Kazakhstan to Asia have sharply declined.
At the same time, crude oil shipments from the United States to Asia have decreased by over a third compared to December, according to vessel-tracking data from Kepler.
New Routes Raise Environmental Concerns:
Currently, ships carrying crude oil from Asia to Europe have to circumnavigate the southern tip of Africa instead of crossing the Suez Canal, which increases journey times by a third or more and leads to a proportional increase in fuel usage and emissions, according to Reuters.
A recent report indicates that shipping companies could face over a fivefold increase in carbon dioxide emissions per container shipped. Researchers at Danish consultancy "C-Intelligence" measured the additional pollution per typical container in a new study that takes into account longer sailing distances, increased speeds, and emissions from smaller vessels taking the alternative route around the Cape of Good Hope.
The study concluded that carbon dioxide emissions per typical container could increase between 31% and 575%.
This exacerbates the ship's carbon intensity index, contributing to a global environmental catastrophe and undermining the foundations of the global economy.
Impact on Oil Prices:
The disruptions in the Red Sea impact oil prices through increased transportation costs, prompting refineries to seek markets closer to them whenever possible.
This has led many analysts and experts to predict a significant increase in oil prices in the near future.
Indeed, oil prices have risen by around 7% since the beginning of the current year (2024) due to mounting concerns about supplies from the Middle East and pressures on global energy markets.
According to a report published by energy news website "Oil Price," shipping disturbances in the Red Sea and through the Suez Canal are pushing up prices for African and American crudes, as well as diesel prices in Europe.
Where will the global economy head after the shift in oil export and transportation routes? Can the relevant countries be expected to collaborate in finding collective solutions to address the challenges posed by the shift and enhance security and sustainability in the region?
