Global crude oil, fuel flows via Suez Canal plunge amid Houthi threat; supplies to India

“Global crude and oil product flows through the Suez Canal have already halved in December, dropping from their usual 7 million bpd (barrels per day) rate to 3.4 million bpd, and most probably edging even lower in the remaining part of this month,” said Viktor Katona, lead crude analyst at commodity market analytics firm Kpler.

Over the past few days, a few cargo ships have come under attack from the Houthi rebels around the Bab-al-Mandeb strait, which leads to the Red Sea and Suez Canal, forming the shortest, albeit narrow, route to the Mediterranean Sea and beyond from the Arab Peninsula, North-East Africa, and the Arabian Sea. The route is seen as an important artery of global goods and energy supplies. The Houthis have so far claimed that they are targeting vessels with links to Israel in view of its military offensive in Gaza.

Prior to December, the Suez Canal and the Red Sea accounted for around 10 per cent of global crude oil flows and 14 per cent of petroleum product flows, as per Kpler data. But as a number of major shipping companies are now avoiding the route, choosing instead to go around the African continent via the Cape of Good Hope, the share of global oil and petroleum product flows passing through the Suez Canal has now dropped significantly, Katona said.

As for oil shipments to India from its major suppliers, industry watchers do not expect much of an impact as most of India’s oil from key West Asian suppliers like Iraq, Saudi Arabia, and the United Arab Emirates (UAE) comes through the Strait of Hormuz that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. India, however, does depend on the Suez Canal and Red Sea route for its Russian oil imports. But so far, tankers carrying Russian oil have appeared impervious to the Houthi threat.

“India’s crude supply is relatively safe. First of all, of all the tankers that were hit, there were no crude tankers at all. Second of all, Saudi and Iraqi exports avoid the Bab-al-Mandeb area completely, so there is no risk of getting hit. Third, Russian tankers seem to be immune to Houthi retaliation, so it is highly unlikely there would be any impact on Russian crude flows,” Katona said.

India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. Russia is currently India’s top source of oil, followed by Iraq, Saudi Arabia, and the UAE.

Most of India’s Russian oil imports take the Suez Canal-Red Sea route and so far, it is business as usual on that front. In fact, currently four oil tankers carrying Urals crude from Russia are headed to the Bab-al-Mandeb strait and all are headed for deliveries at Indian ports, as per ship tracking data. Oil and shipping analysts do not foresee tankers carrying Russian oil coming under attack in the region as Russia is perceived as Iran’s ally. The Houthi rebels are widely believed to be backed by Tehran.

As for international oil prices, the crisis has so far had a limited impact. While there has been some upward pressure on prices due to the likelihood of higher transportation costs linked to rerouting, the prices have not really shot up. This is because the disruption is being seen as limited to rerouting of shipments through the much longer route going around Africa, and is highly unlikely to impact oil production and availability. For instance, a crude shipment from Saudi Arabia to Rotterdam takes around 42 days around the Cape of Good Hope, against 24 days through the Suez Canal. So, the uptick in prices is expected to be largely on account of higher cost of freight and insurance as nothing else has changed in the physical oil market.

Over the past week, the price of benchmark Brent crude has appreciated by around 7 per cent and is currently hovering around the $80-per-barrel mark. The prices are still considerably lower than the $90-plus levels seen in September. In a recent report, Goldman Sachs said that it does not expect the disruptions in the Red Sea to significantly impact international oil prices as global oil production is unlikely to be directly affected.

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