Oil: Red sea disruptions reshape global flows – Societe Generale

Societe Generale analysts Michael Haigh and Jeremy Sellem explain how security concerns in the Red Sea and Bab al-Mandab are compelling oil shipments to take longer, more complicated routes. They point out a sharp decline in Red Sea traffic, costly detours through the Suez Canal, Sumed pipeline, and Cape of Good Hope. Oil producers are now prioritizing safe delivery over production.

Navigating from the Red Sea to Asia has become a far more challenging journey, with tankers facing multiple detours, transshipments, and new risks at each stage. The Bab al-Mandab, now a recurring obstacle, predominantly targets Saudi-flagged vessels, while Chinese-flagged tankers carrying Saudi crude continue to use the passage.

Due to the increased danger, an alternative route involves moving Saudi crude via the East-West Pipeline to Yanbu, reloaded onto a VLCC via the Sumed pipeline in Egypt, and shipped through Gibraltar and the Cape of Good Hope. To avoid threats in the Bab al-Mandab and Gulf of Aden, vessels continue through the Indian Ocean and the Strait of Malacca.

Disruptions in Kazakhstan, including reduced exports, refinery outages, and attacks on shipping infrastructure, indicate that the oil market remains vulnerable to further setbacks. Just as Odysseus encountered new challenges with each obstacle he overcame, the oil market has shifted from disruption to disruption without returning to normalcy.

The overarching issue is clear: the main challenge now lies in safely transporting oil through an increasingly hazardous journey.