With Red Sea quagmire running unabated, vessel attacks top 23 as oil prices drop down

As one of the most heavily traveled waterways in the world sunk deeper into the depths of violence and lawlessness, a wave of attacks, carried out by Yemen’s Huthis, on oil tankers and other commercial vessels in the Red Sea rose to 24 over the past few weeks. After the Red Sea crisis struck, oil prices were on the rise, stoked by fears of supply disruptions due to concerns that a wider conflict could break out across the Middle East. However, oil prices have now settled down, as no supply disruptions were recorded, sparking hopes that none would occur in the future. Is this just the calm before the storm or will prices remain stable without further spikes?

With the Israel-Gaza crisis in full swing, the Red Sea, which sees a lot of maritime traffic between Europe and Asia with its connection to the Mediterranean Sea via the Suez Canal, became a flurry of maritime incidents after the Houthis decided to employ maritime retaliation tactics against global shipping companies with ties to Israel, affecting those with no such bonds as well.

As a result, supply costs went through the roof and safety concerns rose sharply, prompting an exit from the Red Sea trade, as a significant number of shipping players were forced to halt their shipping activity through this maritime route and reroute some vessels that were on their way to the Red Sea.

The list of shipping industry giants that took steps to suspend trading on their Red Sea trade routes to prioritize the safety of their vessels, crews, and cargo includes but is not limited to Denmark’s A.P Moller-Maersk, the Italian-Swiss Mediterranean Shipping Company (MSC), France’s CMA CGM, Germany’s Hapag-Lloyd, and Hong Kong’s Orient Overseas Container Line (OOCL).

A few days ago, Maersk revealed its gradual return to the Red Sea on the heels of the deployment of Operation Prosperity Guardian (OPG), a multi-national security initiative established to respond to Houthi-led attacks on shipping in the Red Sea. This has spurred the partial return of maritime industry majors such as Maersk, CMA CGM, and COSCO to the Red Sea.

According to the U.S. Central Command (CENTCOM), Iranian-backed Houthis fired two anti-ship ballistic missiles from areas under their control in Yemen into the Southern Red Sea on January 2, 2023. The impact of this attack has been reported by multiple commercial ships in the area but none have sustained any damage.

“These illegal actions endangered the lives of dozens of innocent mariners and continue to disrupt the free flow of international commerce. This is the 24th attack against merchant shipping in the Southern Red Sea since Nov. 19,” outlined CENTCOM.

The 24th attack comes only days after Houthis’ small boats attacked a merchant vessel and U.S. Navy helicopters in the Southern Red Sea, which happened on December 31. At the time, the Maersk Hangzhou container vessel reported being under attack by four Houthi small boats, which opened fire at the ship and attempted to board it.

The vessel’s security team returned the fire while U.S. helicopters from the USS Dwight D. Eisenhower (CVN-69), a nuclear-powered aircraft carrier, and Gravely (DDG-107), an Arleigh Burke-class guided missile destroyer, came to the ship’s aid. After the small boats fired upon the U.S. Navy helicopters, these helicopters returned fire and sank three of the four small boats, killing the crews, while the fourth boat fled the area.

In the aftermath of the attack, Maersk set a temporary suspension of all sailings through the Red Sea into motion. However, the shipping giant has now opted to halt all transits through the Red Sea and Gulf of Aden until further notice in a bid to stay away from the region due to security woes.

Another global liner major, Hapag-Lloyd, is also keeping its distance from the region as it believes that crossing the Suez Canal is still too dangerous. In addition, CMA CGM and MSC are diverting their vessel traffic via the Cape of Good Hope due to the perils that lie in wait in the Red Sea.

Some, like the former Israeli Intelligence Official and regional analyst, Avi Melamed, see Maersk’s announcement about halting its Red Sea routes as a signal of a Houthi victory against the U.S. administration. Like multiple others, Melamed is laying the blame for the most recent maritime security issues at Iran’s door since the country is seen as the Huthis’ main arms supplier.

Melamed explained: “During earlier stages of the conflict, the United States projected its power in the Middle East by deploying substantial naval, air, and ground forces, which improved its reputation in the region. However, Maersk’s decision to halt its Red Sea routes highlights the U.S. administration’s failure to counter the Houthi threat, due to its lack of conviction to proactively prosecute Houthi targets.

“Despite defensive strategies, including recent actions against Houthi assets actively committing attacks on ships, the administration’s response hasn’t proven forceful enough. The region, along with commercial shippers like Maersk, seeks a more decisive U.S. intervention to deter future Houthi attacks. The Houthi success measure has been achieved with Maersk’s announcement, leaving the outcome in the hands of the U.S. administration.”

Hit by the turmoil and investors’ fears about further disruptions and supply cost hikes, Brent crude rose 1.8% to $77.95 a barrel and U.S. West Texas Intermediate crude price jumped 1.5% to $72.47 on December 18. As new developments came to light, things kept changing over the past few weeks, but the oil prices also increased about $2 after the attack on Maersk’s vessel over the weekend and the appearance of an Iranian warship on the scene.

However, oil prices have now experienced a drop, with Brent crude felling down to $75.88 a barrel and U.S. West Texas Intermediate crude futures decreasing to $70.3 a barrel. As traders keep an eye on growing tensions in the region, they are anticipating a stable oil supply during the first half of 2024, which is keeping a lid on prices ahead of the upcoming OPEC+ meeting that Reuters reports will be next month.

Some fear that the current slump in prices may lull people into a false sense of security, as new production cuts from OPEC+ have the potential to bring these prices up once again. Would additional production cuts stabilize the oil markets? This remains to be seen, but a recent Reuters survey indicates that oil prices could average $82.56 a barrel this year amid a backdrop of projected weak global growth.

Many, including Goldman Sachs, believe that the disruption to energy flows in the Red Sea will not have a significant impact on crude oil and liquefied natural gas (LNG) prices, as redirection moves being taken by oil tankers and LNG carriers imply that the security situation is unlikely to negatively impact production.

On the other hand, analysts warn about potential ripple effects of security challenges in the Red Sea on global supply chains, increasing the costs of moving goods even further, as about 15% of world shipping traffic is carried out through the Suez Canal, which is hailed as the shortest shipping route between Europe and Asia. Shipping insurance market firms have been expanding the potential high-risk zone in the Red Sea, which has upped the ships’ premiums ante.

As Israeli airstrikes continue to rain over Gaza, the UN warns that civilians, who are caught up in the war, remain in dire straits with the death toll exceeding 22,000, based on the information provided by Gaza’s health ministry. Despite this, there is no end in sight for the conflict, as confirmed by Yoav Gallant, Israel’s Defence Minister, who recently underlined that the Israeli government was in it for the long haul, preparing itself for a long war with no set end date until “a clear victory.”

While five Israeli brigades are set to leave Gaza over the next few weeks, this is not expected to ease the difficulties Palestinians are facing, as Israel is gearing up for months of war, if not even longer than that. In addition, some Israeli ministers have intensified their calls to “resettle” Palestinians living in Gaza. After South Africa filed a genocide claim against Israel at the International Court of Justice (ICJ) due to the Gaza crisis, Israel disclosed its intention to fight the case.

The UN health agency WHO explains that out of the 1.93 million displaced in Gaza, some 52,000 pregnant women are giving birth to around 180 babies every day while 1,100 patients need kidney dialysis, 71,000 have diabetes, and 225,000 need treatment for high blood pressure.

In its first update in 2024, OCHA outlined that Israeli authorities oversaw the demolition of 1,119 structures in the West Bank – a record since data collection began in 2009 – uprooting 2,210 people last year.

Is it possible to craft a nurturing peace with a two-state solution for the Israel-Gaza crisis soon, which would establish a safe place people on both sides of this conflict can truly call their own? Trying to come up with ways to make this happen and turn dreams of peace into a reality for all the people living in the region, certainly provides food for thought while highlighting the need for swift action.

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