Attack on Egyptian Port Raises New Risks for Suez Canal and Middle East Energy Exports
A drone attack in Egyptian waters that damaged two oil tankers this week has renewed concern about the security of the Suez Canal and related oil infrastructure. Since the U.S.-Iran war began, the route has been a key channel for Saudi oil exports. In recent weeks, Iran and its Houthi allies have fired on tankers transiting the Strait of Hormuz and the Bab el-Mandeb. Egypt’s Suez Canal and the SUMED pipeline had continued to serve as a safe haven, providing a northbound export route for energy cargoes from Saudi Arabia’s Red Sea coast. No party has claimed responsibility for Wednesday’s attack on tankers at Egypt’s Damietta Port, which is located on a branch of the Nile Delta near the Mediterranean. No one has publicly threatened the Suez Canal, but the potential risk to the strategic waterway has added to market concerns. Saul Kavonic, head of energy research at consulting firm MST Marquee, said that routes through the Red Sea—including the longer Mediterranean route—could now face security threats. “This directly endangers oil supplies of up to 5 million barrels a day that could otherwise bypass the Strait of Hormuz,” he said. Very few tankers are now able to transit the Strait of Hormuz normally. The strategic waterway previously carried about one-fifth of the world’s oil and liquefied natural gas supplies. After the U.S.-Iran conflict began, Saudi Arabia quickly redirected most of its oil to exports through the Red Sea and the Yanbu terminals. Since last week, however, escalating Houthi threats and attacks have forced many tankers to change course again. Data from market intelligence firm Kpler show that increasing volumes of Saudi crude and other cargoes are being diverted north through the Red Sea toward the Suez Canal and the SUMED pipeline. For Asian customers, that means taking a longer route around Africa rather than sailing south directly through the Gulf of Aden. MarineTraffic data on Thursday showed about 30 vessels clustered around the Port Said anchorage at the Mediterranean entrance to the Suez Canal, compared with roughly 20 earlier in the week. George Morris of energy analytics firm Vortexa said the number of crude and condensate tankers choosing to head north after loading in the Red Sea had surged, clearly because of Houthi threats. Kpler data also show that some crude is still flowing south through the Bab el-Mandeb, but volumes have fallen by nearly half from the beginning of the month. The share of oil loaded at Yanbu and shipped south dropped to 43% from 81% in June. Is the final export route being blocked? Iran has previously issued a strong warning that it would seek to block all energy exports from the Middle East until the United States lifts its blockade of Iranian tankers, effectively reducing exports to zero. Yemen’s Houthis have also announced a comprehensive blockade of all shipping linked to Saudi Arabia. That would make any vessel attempting to load at Yanbu and sail to the Mediterranean a potential target. The two forces have also demonstrated that their long-range strike capability extends to the Suez Canal area by launching drones and rockets at Israel. The greater geographic distance gives air-defense systems more time to intercept attacks, but the security threat remains. Martin Senior, head of LNG pricing at Argus, said the security risk alone could sharply increase maritime insurance rates. “Given the sharp rise in risks to shipping and energy infrastructure in the region, insurers are likely to impose higher additional war-risk premiums on Suez Canal routes even if Iran has not issued an explicit warning,” Senior said. A maritime security source said major shipping companies had begun urgently reassessing security measures near the Suez Canal and around Egypt’s Mediterranean ports. At least for now, Egyptian officials do not view the attack as evidence that the Suez Canal is in immediate danger. Wael Kaddour, a former board member of the Suez Canal Authority, said: “The Suez Canal has an extremely robust defense system and remains under the highest level of security monitoring around the clock.” Aly Blakeway, head of Atlantic LNG at S&P Global Energy, also said the attack at Damietta Port did not mean the canal would immediately be paralyzed. At this stage, the market has not priced in the extreme risk of a Suez Canal disruption. International oil prices actually fell on Thursday as traders watched negotiations between Iran and Oman over the Strait of Hormuz. Even before the attack, logistics costs for moving Middle Eastern oil to global markets had been rising because routes were becoming longer and more complicated. Morris said Yanbu exports accounted for about 15% of total Asian seaborne crude and condensate imports in June, meaning a prolonged disruption would have a material impact on Asian refineries. Corey Ranslem, chief executive of maritime security firm Dryad Global, said: “Any attack along the canal would cause war-risk insurance premiums to surge and completely overturn the region’s entire security assessment.” Matthew Wright, Kpler’s chief freight analyst, warned: “A material disruption to the Suez Canal would have an immediate effect on global prices. The inflationary pressure from longer voyages and soaring freight rates would be passed through to end consumers almost immediately.” On the 30th, Saudi Arabia invited representatives from dozens of countries and organizations to a meeting on a proposed multinational maritime defense alliance to address “maritime threats” in the Red Sea, the Bab el-Mandeb and the Gulf of Aden. According to the Saudi side, the meeting was hosted by the Saudi Defense Ministry, with representatives from 43 countries and the European Union attending in person or remotely. Discussions covered “growing threats to maritime security,” including attacks on merchant ships, energy carriers and offshore infrastructure, as well as risks to navigation, global supply chains and the economy.
In recent weeks, Iran and its Houthi allies have fired on tankers transiting the Strait of Hormuz and the Bab el-Mandeb. Egypt’s Suez Canal and the SUMED pipeline had continued to serve as a safe haven, providing a northbound export route for energy cargoes from Saudi Arabia’s Red Sea coast.
No party has claimed responsibility for Wednesday’s attack on tankers at Egypt’s Damietta Port, which is located on a branch of the Nile Delta near the Mediterranean. No one has publicly threatened the Suez Canal, but the potential risk to the strategic waterway has added to market concerns.
Saul Kavonic, head of energy research at consulting firm MST Marquee, said that routes through the Red Sea—including the longer Mediterranean route—could now face security threats. “This directly endangers oil supplies of up to 5 million barrels a day that could otherwise bypass the Strait of Hormuz,” he said.
Very few tankers are now able to transit the Strait of Hormuz normally. The strategic waterway previously carried about one-fifth of the world’s oil and liquefied natural gas supplies.
After the U.S.-Iran conflict began, Saudi Arabia quickly redirected most of its oil to exports through the Red Sea and the Yanbu terminals. Since last week, however, escalating Houthi threats and attacks have forced many tankers to change course again.
Data from market intelligence firm Kpler show that increasing volumes of Saudi crude and other cargoes are being diverted north through the Red Sea toward the Suez Canal and the SUMED pipeline. For Asian customers, that means taking a longer route around Africa rather than sailing south directly through the Gulf of Aden.
MarineTraffic data on Thursday showed about 30 vessels clustered around the Port Said anchorage at the Mediterranean entrance to the Suez Canal, compared with roughly 20 earlier in the week. George Morris of energy analytics firm Vortexa said the number of crude and condensate tankers choosing to head north after loading in the Red Sea had surged, clearly because of Houthi threats.
Kpler data also show that some crude is still flowing south through the Bab el-Mandeb, but volumes have fallen by nearly half from the beginning of the month. The share of oil loaded at Yanbu and shipped south dropped to 43% from 81% in June.
Is the final export route being blocked?
Iran has previously issued a strong warning that it would seek to block all energy exports from the Middle East until the United States lifts its blockade of Iranian tankers, effectively reducing exports to zero.
Yemen’s Houthis have also announced a comprehensive blockade of all shipping linked to Saudi Arabia. That would make any vessel attempting to load at Yanbu and sail to the Mediterranean a potential target.
The two forces have also demonstrated that their long-range strike capability extends to the Suez Canal area by launching drones and rockets at Israel. The greater geographic distance gives air-defense systems more time to intercept attacks, but the security threat remains.
Martin Senior, head of LNG pricing at Argus, said the security risk alone could sharply increase maritime insurance rates. “Given the sharp rise in risks to shipping and energy infrastructure in the region, insurers are likely to impose higher additional war-risk premiums on Suez Canal routes even if Iran has not issued an explicit warning,” Senior said.
A maritime security source said major shipping companies had begun urgently reassessing security measures near the Suez Canal and around Egypt’s Mediterranean ports.
At least for now, Egyptian officials do not view the attack as evidence that the Suez Canal is in immediate danger. Wael Kaddour, a former board member of the Suez Canal Authority, said: “The Suez Canal has an extremely robust defense system and remains under the highest level of security monitoring around the clock.”
Aly Blakeway, head of Atlantic LNG at S&P Global Energy, also said the attack at Damietta Port did not mean the canal would immediately be paralyzed. At this stage, the market has not priced in the extreme risk of a Suez Canal disruption. International oil prices actually fell on Thursday as traders watched negotiations between Iran and Oman over the Strait of Hormuz.
Even before the attack, logistics costs for moving Middle Eastern oil to global markets had been rising because routes were becoming longer and more complicated.
Morris said Yanbu exports accounted for about 15% of total Asian seaborne crude and condensate imports in June, meaning a prolonged disruption would have a material impact on Asian refineries.
Corey Ranslem, chief executive of maritime security firm Dryad Global, said: “Any attack along the canal would cause war-risk insurance premiums to surge and completely overturn the region’s entire security assessment.”
Matthew Wright, Kpler’s chief freight analyst, warned: “A material disruption to the Suez Canal would have an immediate effect on global prices. The inflationary pressure from longer voyages and soaring freight rates would be passed through to end consumers almost immediately.”
On the 30th, Saudi Arabia invited representatives from dozens of countries and organizations to a meeting on a proposed multinational maritime defense alliance to address “maritime threats” in the Red Sea, the Bab el-Mandeb and the Gulf of Aden.
According to the Saudi side, the meeting was hosted by the Saudi Defense Ministry, with representatives from 43 countries and the European Union attending in person or remotely. Discussions covered “growing threats to maritime security,” including attacks on merchant ships, energy carriers and offshore infrastructure, as well as risks to navigation, global supply chains and the economy.