Oil price gains and shipping headaches after Red Sea attacks risk new wave of inflation

A crisis is emerging in a major trade route, which could disrupt supply chains and lead to increased oil prices and inflation. Commercial ships in the Red Sea have been targeted by Yemen’s Houthi militants, prompting BP and four container shipping companies to halt transit through the Red Sea and avoid the Suez Canal. The Suez Canal is a crucial waterway for global trade, with approximately 10-15% of global trade and 30% of container trade passing through it. Rerouting ships around the southern tip of Africa would increase freight costs and delivery times. The United States and nine other countries have launched a naval mission to protect commercial shipping in the Red Sea. Oil prices rose nearly 2% after BP suspended shipments through the Red Sea, marking a reversal after seven consecutive weeks of decline. Europe is particularly vulnerable to disruptions in the Suez Canal, as a quarter of its oil imports arrive through the canal. While rerouting vessels is an option, it could result in short-term supply chain congestion and higher freight costs. Longer delivery times may have ripple effects on supply chains.