VLCCs avoid Red Sea strait as Houthi threats boosts rates amid rising shipping risks

Very Large Crude Carriers (VLCCs) are avoiding the Bab al-Mandab Strait due to escalating threats from the Houthi militia, driving up shipping rates in the process. The militant group recently moved into the coastal city of Mokha and claimed Perim Island in the strategic waterway, while also attacking the East-West pipeline, intensifying their conflict with Saudi Arabia.

Since September 9, no VLCCs have transited the strait, compared to 24 crossings in August and 63 in July. Risk consultant Scarlett Suarez noted the Houthis' advantageous position at Mokha and Perim, warning of a significant risk to Saudi-associated tankers and cargoes. Maritime traffic via the Bab al-Mandab has not decreased as much for non-oil tankers, with dry bulk ship crossings averaging 12.7 in the past week, compared to 17.4 a month ago, and container ship crossings at 5.9, compared to 6.

Tanker executives attribute the increased demand for Red Sea diversions to VLCCs transporting oil from the Mediterranean and the Atlantic to Asia. Saudi Arabia has resorted to shipping crude from Yanbu to Asian consumers via the Suez Canal, either directly or through the SUMED pipeline, increasing its share of Saudi-Asia flows to 58% in August, up from 5% in July.

Looking ahead, the Houthis could undermine the resilience of Saudi Arabia's Red Sea export route, with sporadic attacks and seizures raising insurance costs, delaying cargoes, complicating chartering, and encouraging ships to reroute around the Cape of Good Hope.