Oil prices shot up three percent Monday as more companies suspended shipping through the Red Sea following attacks on vessels.
Five of the world's six largest shipping companies have announced they will not send ships through the Red Sea. On Monday, British oil giant BP and Taiwan's Evergreen became the latest to suspend transit.
Ships must travel through the Red Sea to use the Suez Canal, a key transit route for cargo and oil.
"Given the importance of the Red Sea and Suez Canal as a crucial transit point for both crude oil and natural gas, these suspensions mean that cargos face a lengthy diversion around the Horn of Africa which will add significant costs to company supply chains, as well as having significant inflationary impacts," said market analyst Michael Hewson at CMC Markets.
Bab al-Mandab is one of the world's most important routes for global seaborne commodity shipments, particularly crude oil and fuel from the Gulf bound westward for the Mediterranean via the Suez Canal or the nearby SUMED pipeline, as well as commodities heading eastward for Asia, including Russian oil. The rise in Red Sea war risk premiums translates into tens of thousands of dollars of extra costs for a seven-day voyage. MSC said it would reroute some services around the Cape of Good Hope on Africa's southern tip, adding days to the sailing times of vessels booked to transit the Suez Canal.
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