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BP has become the first oil major to pause all shipments through the Red Sea, citing a “deteriorating security situation” because of escalating Yemeni rebel attacks on ships passing through a route that handles about 10 per cent of global trade.
Brent crude, the international benchmark, settled up 1.8 per cent at $77.95 a barrel. The US equivalent, West Texas Intermediate, settled 1.5 per cent higher at $72.47.
The UK’s benchmark gas price jumped as much as 14 per cent, while its European peer rose close to 13 per cent on concerns about the shipment of liquefied natural gas.
The UK oil group’s decision comes as Iran-backed Houthi rebels have intensified their campaign against ships passing through the Suez Canal following the outbreak of the Israel-Hamas war.
“We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region,” BP said in a statement on Monday.
Shares in some of the biggest shipping companies also climbed, extending gains from last week as investors expect disruptions will cause freight rates to rise, boosting earnings.
AP Møller-Mærsk, which operates the world’s second-largest container shipping fleet, rose 3.1 per cent, while Hapag-Lloyd, the world’s fifth-largest, jumped 8 per cent. Both companies last week also paused transit through the Red Sea because of the threat of attacks.
Longer routes around Africa could in turn delay the delivery of commodities, consumer goods and oil between Europe and Asia.
Traders will also be closely watching whether other companies follow BP’s example.
Privately held Trafigura, one of the world’s biggest independent traders of oil and LNG, said it was monitoring the situation.
Shell declined to comment.
The price of oil could jump “at least” $10-$15 for Brent crude if all shipments from the Middle East to Europe avoided the Red Sea and travelled around Africa, said Henning Gloystein, a director at consultancy Eurasia Group. Prices for TTF, Europe’s main gas trading benchmark, could rise 25-30 per cent, he added.
“BP is the first global portfolio player to [pause shipments],” Gloystein said. “[It will be] crucial to see now how strong the US and European naval task force response is.”
Ship owners have called for protection on maritime routes. The US, which suffered attacks on a warship this month, is preparing to announce an expanded international task force to protect vessels in the Red Sea.
“There’s a lot of push and pull, with some in the US favouring naval strikes into Yemen, and others, mostly from Europe, fearing that would further escalate [things], so they instead prefer a focus on naval air defence,” said Gloystein.
LNG flows through the Red Sea accounted for about 8 per cent of global trade in the first half of this year, according to the US Energy Information Administration.
BP’s statement came hours after the UK’s maritime authority said it had received reports of “incidents” in the Red Sea and advised vessels to proceed in the region with “caution”.
Marine underwriters in the London insurance market said the area in the Red Sea designated higher risk had been expanded. This is likely to increase the cost of insuring vessels in affected areas.
Additional reporting by Ian Smith, Insurance Correspondent