The volume of oil going from the Middle East to Europe has significantly decreased due to ongoing attacks by Houthi rebels in Yemen. These attacks have resulted in tighter supply and concerns over shipping delays, as vessels avoid the Red Sea where the attacks have been concentrated. The disruptions caused by the attacks, which are the largest since the COVID-19 pandemic, have increased competition for crude supply in European markets. This is particularly evident in the market structure of Brent crude, the global benchmark for oil prices, which has become more bullish in response to the attacks.
The Houthi rebels, aligned with Iran, have targeted ships with perceived links to Israel in an attempt to pressure Tel Aviv to stop the war and allow humanitarian aid into the Gaza Strip. The attacks have mainly occurred in the Bab al-Mandeb strait, a crucial passage for global trade connecting the Gulf of Aden to the Red Sea. As a result, many shipping companies have suspended transit in the region, forcing vessels to take a longer route around the Cape of Good Hope in Southern Africa. This has led to higher freight rates due to increased fuel, crew, and insurance costs.
European refiners are particularly affected by the disruptions, as the Brent futures contract is the most impacted in terms of Red Sea and Suez Canal disruptions. The volume of Middle Eastern crude heading to Europe has nearly halved, significantly impacting European refiners. The drop in supply is also influenced by other factors such as protests affecting Libyan supply and lower Nigerian exports. Additionally, Angolan crude, which doesn’t need to pass through the Suez Canal, is in higher demand from China and India due to issues surrounding Iranian and Russian crude.
The article also highlights Russia’s rise as China’s top crude oil supplier, surpassing Saudi Arabia. Despite Western sanctions over Russia’s invasion of Ukraine, China has continued to purchase large quantities of discounted Russian oil for its processing plants. In 2023, Russia shipped a record amount of crude oil to China, significantly surpassing other major oil exporters. Saudi Arabia, previously China’s largest supplier, has lost market share to cheaper Russian crude.
Overall, the disruptions caused by the Yemen attacks have had a significant impact on oil supply to Europe and have resulted in tighter supply and increased competition in the market. European refiners are particularly affected, and the situation is further compounded by other factors such as protests in Libya, lower Nigerian exports, and changing dynamics in the global oil trade. Additionally, Russia’s rise as China’s top crude oil supplier highlights the shifting dynamics in the global oil market.
