The attack on oil tankers in the Bab el-Mandeb Strait is reshaping the oil market, and the bypass will further tighten the refined oil market
The market placed its hopes on the resumption of peace talks between the United States and Iran, and oil prices fell sharply on Monday as a result. However, Standard Chartered believes that this pullback may be extremely short-lived as geopolitical risks have spread from the Strait of Hormuz to the Bab el-Mandeb Strait. In recent days, Yemen's Houthis have imposed a targeted naval blockade on Saudi Arabia and threatened to prevent Saudi-linked ships from passing through the crucial Bab el-Mandeb Strait. This will directly affect Saudi Arabia's daily export of millions of barrels of crude oil.
The market placed its hopes on the resumption of peace talks between the United States and Iran, and oil prices fell sharply on Monday as a result. However, Standard Chartered believes that this pullback may be extremely short-lived as geopolitical risks have spread from the Strait of Hormuz to the Bab el-Mandeb Strait. In recent days, Yemen's Houthis have imposed a targeted naval blockade on Saudi Arabia and threatened to prevent Saudi-linked ships from passing through the crucial Bab el-Mandeb Strait. This will directly affect Saudi Arabia's daily export of millions of barrels of crude oil. Standard Chartered Bank estimates that Saudi Arabia’s crude oil loading through the Yanbu Port has climbed to about 4.5 million barrels per day. Together with the crude oil transportation volume from the Suez Canal southward, before the Houthi armed blockade, Saudi Arabia exported about 7 million barrels of crude oil through the Bab el-Mandeb Strait per day. Once transportation in the Bab el-Mandeb Strait is interrupted, it will affect the entire tanker market. The risk of war has caused insurance premiums to rise, freight rates to increase, tanker supplies to be tight and cargo deliveries to be delayed. If the situation worsens, Saudi Arabia may be forced to cut crude oil production again because this alternative export route cannot replace the lost capacity. Kpler data showed that only 11 commodity ships passed through the Bab el-Mandab Strait on Sunday, the lowest number in months, after Yemen's Houthi rebels attacked Saudi oil facilities on the Red Sea coast. Several very large crude carriers (VLCCs) linked to Saudi Arabia have abandoned their route through the Bab el-Mandeb Strait and instead sailed around the Cape of Good Hope in Africa. The Red Sea, Suez Canal and Suez-Mediterranean oil pipeline form the shortest export route between Asia and Europe. Circling the Cape of Good Hope would extend the voyage by 10 to 15 days, extending the time it takes to replenish stocks. This also means that refiners may be forced to purchase more crude oil from West Africa, the United States or Brazil, which will significantly affect the global trade pattern and intensify regional oil price fluctuations. Standard Chartered Bank also pointed out that compared with VLCCs, product tankers that specialize in transporting refined petroleum, processed petroleum and other petroleum products and rely heavily on Suez Canal transportation may be hardest hit. In the event of a blockage in the Bab el-Mandeb Strait, Standard Chartered Bank pointed out that European refiners may bear the brunt. This means that local supply tensions for refined oil products will intensify. Currently, the European diesel market is already facing supply disruptions due to the escalation of the Russia-Ukraine conflict. The blockade of the Bab el-Mandeb Strait will lead to further delays in the supply of diesel and aviation fuel, thereby exacerbating the shortage of medium-sulfur fuel oil.