The Mosaic Co. had a vessel enroute from Saudi Arabia to New Orleans that was diverted from the Red Sea, Bloomberg reported on Dec. 18, citing Ben Pratt, Mosaic Senior Vice President, Government and Public Affairs. No other details were available.

Shipping in the Red Sea is grinding to a halt with oil tankers idling and container vessels rerouting around Africa as violence linked to the Israel-Hamas war threatens to undermine the global economy. BP has halted all shipments of oil and gas through the Red Sea, citing a “deteriorating security situation” due to missile strikes on cargo ships by Houthi militants in Yemen.

More than 100 container ships are now taking the long route around Africa to avoid violence, creating extra costs and delays, according to Swiss logistics giant Kuehne+Nagel International AG. Some 55 merchant ships entered or left the Red Sea on Dec. 16-17, according to data compiled by Bloomberg. That is down 35% from the start of the month.

European natural gas prices have surged amid the most concrete sign yet of a disruption to energy flows since the start of the war in Gaza. The Red Sea attacks are threatening a trade corridor through which about 12% of seaborne commerce normally passes, and are happening at a time when the world’s other vital ocean-to-ocean waterway – the Panama Canal – is being severely restricted by drought.

“Rising uncertainty in the Suez channel, combined with the global economy rebounding because of easier financial conditions, could put upward pressure on goods inflation over the coming months,” said Apollo Global Management Chief Economist Torsten Slok.

However, after three days of advancing, Bloomberg reported on Dec. 21 that oil prices had edged lower as traders weigh surging US production against a disruption in the OPEC cartel and the Red Sea threat. West Texas Intermediate slipped below $74 a barrel after a three-day advance, with sentiment worsening after Angola announced its exit from OPEC.

Oil traders continue to see signs that supply remains ample as US crude output hit a record of 13.3 million barrels a day last week, according to government data. Oil is still set for the first annual decline since 2020, as booming production from the US, Guyana, and Brazil offsets output cuts by Saudi Arabia and OPEC.

The Iran-backed Houthis say they are targeting any vessel with a connection to Israel as a response to the country’s war with Hamas. The alleged links between Red Sea vessels and Israel have appeared increasingly tenuous as the attacks increase, however.

The owner of the tanker Swan Atlantic, which was attacked by a drone and an anti-ballistic missile on Dec. 18, said there was no such connection. The tanker was transporting biofuel feedstock to Reunion Island from mainland France when it came under attack.

“There is no Israeli link in the ownership (Norwegian), technical management (Singapore) of the vessel, nor in any parts of the logistical chain for the cargo transported,” said Norwegian investment company Rieber & Son.

Separately, bulk cargo ship M/V Clara was targeted the same day, but no damage was reported, according to the US Central Command.

An Israeli-linked chemical tanker carrying a cargo of phosphoric acid from Morocco to Asia was seized in a suspected piracy incident on Nov. 26 in the Gulf of Aden, about 30 nautical miles off Yemen’s southern coast (GM Dec. 1, p. 1). The vessel and crew were reported safe later that day following intervention by a US Navy warship.

The London-based Joint War Committee, which advises Lloyd’s marine insurance underwriters on risk, on Dec. 18 expanded the portion of the Red Sea that it considers to be part of the world’s riskiest waters. That means the amount of time that ships need cover against war risks will increase. The cost of such cover has surged almost 10-fold since the attacks first began.

Already rates to ship goods in containers from Asia to the Mediterranean are rising. According to Freightos.com, a booking and payments platform for international freight, the rate for that route through Suez as of Dec. 17 was $2,414 for a 40-foot container, up 62% since the end of November.

“The situation does mean an increase to shipping costs and some short-term delivery delays,” said Henning Gloystein, a director at research firm Eurasia Group. “All these costs will be directly passed on to consumers.”

Israel’s Eilat Port has seen an 85% drop in business since the stepped up Houthi attacks, according to the Jerusalem Post, citing the Port CEO Gideon Golber on Dec. 21. The port, which is adjacent to Jordan’s Aqaba Port, allows vessels to avoid the Suez Canal, but requires navigation through the Red Sea.

Eilat mainly exports potash from the Dead Sea and imports automobiles. Golber said it still has ships to export potash but they will not be able to go through the Red Sea. An alternative route via the Mediterranean and around Africa would add extra costs and up to three weeks.

“This is an international challenge that demands collective action,” Secretary of Defense Lloyd J. Austin said on Dec. 18. The UK, Canada, France, and others have agreed to create a naval task force to counter attacks on ships in the region. John Kirby, spokesman for the National Security Council, told reporters that talks will be about reinforcing “an existing maritime force under the Fifth Fleet in Bahrain.”

The Houthi rebels have vowed to continue targeting ships if the US moves to compile an international naval task force, however. The group also warned Washington that it is willing to retaliate if the US opts for military attacks on Houthi bases.

“We’re seeking to develop our military capabilities to overcome any obstacles and reach our targets,” Houthi leader Abdul Malik al-Houthi said in a televised speech on Dec. 20. If the US attacks Yemen, “we will target it” by firing missile and drones at US battleships and other vessels, he said.

Over the weekend, the US and UK navies shot down 15 drones launched from Houthi-controlled areas of Yemen. While the US is considering military action against the Houthis, it still prefers a diplomatic solution, Bloomberg reported.

Saudi Arabia supports a measured approach to the crisis to prevent the Houthis becoming more aggressive, said a member of the Saudi team negotiating with the Yemeni group. That could imperil a fragile truce in Yemen’s war and scuttle the kingdom’s attempt to reach a permanent cease-fire, the person said.

The Houthis have repeatedly proven their ability to disrupt or damage crucial infrastructure in Saudi Arabia and the United Arab Emirates. The most devastating attack came in 2019, when they briefly knocked out half of Saudi Arabia’s oil production with a drone strike on a crude-processing plant (GM Sept. 20, 2019). Since the truce with the Saudis in early 2022, they have largely refrained from firing drones and missiles against regional neighbors.

Unless the US bombs the Houthis’ missile launch sites, radars, airfields, and boats, its efforts to combat the threat to shipping will not be effective, said Riad Kahwaji, Founder of INEGMA, a Dubai-based security research group.

“If it’s only about escorting ships, it’s going to have very limited effectiveness, because you’re going to need to have a destroyer or frigate accompany every single ship going through in either direction,” he said.

Until the naval coalition eventually “shows its teeth, the Red Sea situation will continue to have an outsize influence on oil players’ thinking,” said Tamas Varga, an analyst at broker PVM Oil Associates Ltd.