- Laura Jones, Jonathan Josephs & Faisal Islam
- BBC News
Oil prices rose 4% after US and UK strikes in Yemen followed recent attacks by Houthi rebels on ships in the Red Sea.
Brent crude oil hit $80 a barrel for the first time this year as pro-Iranian rebels vowed to retaliate against military action by Western powers.
Although prices have risen, they are below the heights reached when Russia invaded Ukraine.
But the UK government fears another energy shock is possible if freight disruptions spread.
The BBC understands the Treasury is modeling scenarios including crude oil prices rising to more than $10 a barrel and a 25% increase in natural gas.
On Friday, Brent crude — the international benchmark for oil prices for much of the world — hit $80.55 a barrel, while U.S. West Texas Intermediate crude rose 2.71% to $74.73.
The UK government is concerned that continued attacks on shipping in the Red Sea could hurt the UK economy, where growth is weak.
The risk of higher energy prices fueling inflation has begun to slow. Meanwhile, the cost of shipping containers on ships has risen, meaning companies may choose to pass this cost on to consumers.
Prime Minister Rishi Sunak said the attacks had caused “major disruption to an important trade route [higher] Cost of goods”.
But Simon French, chief economist at Banmure Gardens, pointed out that energy prices were still significantly lower than they were four months ago.
“At these levels, it's actually very inflationary for the UK economy,” he said.
When the Bank of England makes its next interest rate decision in February, oil prices will be 20% lower than they were in the autumn, he said.
More on US-UK strikes in Yemen
Houthi rebels in Yemen have stepped up attacks on merchant ships since the Israel-Hamas war began in October. The US has reported 27 attacks in the Red Sea since mid-November.
The group uses drones and rockets against foreign ships transporting goods through the Bab al-Mandab Strait — a 20-mile-wide channel that separates Eritrea and Djibouti on the African side and Yemen on the Arabian Peninsula.
Ships usually take this major trade route from the south to reach Egypt's Suez Canal further north. Many companies now ship around the Cape of Good Hope, a route that adds at least 10 days of travel.
On Friday, shipping data showed at least four oil tankers diverted after an overnight strike by the US and UK.
Currently, a quarter of the world's shipping containers are diverted.
According to the White House, about 15% of world seaborne trade passes through the Red Sea. This includes 8% of the world's grain, 12% of marine oil and 8% of the world's liquefied natural gas.
Vincent Clerk, chief executive of shipping giant Maersk, told the BBC that “significant disruption” to global trade was already being felt “all the way to the end consumer”.
Many companies say they've already seen, or expect to see, a knock-on effect:
- Tesla has halted most of its car production due to the disruption at its Berlin plant
- Tesco's boss has warned it may “raise the price of some items”.
- Next, it said there may be delays in deliveries
- Ikea said supplies may be affected
- Danone says transit times for its exports have increased
The Houthi group has declared its support for Hamas and said it targets ships traveling to Israel, although it is unclear whether all the ships attacked are actually bound for Israel.
As a result of the attacks, Maersk and many of the world's major shipping lines are avoiding a key route for global trade as they prioritize the safety of their crews.
“We have ships that are being fired upon. We have colleagues whose lives are at risk when this happens and we cannot justify sailing through these danger zones,” Mr Clarke said.
He said the long route around Africa would absorb capacity from the global shipping system in a short period of time, adding seven days to two weeks to a ship's journey, as well as costing $1m (£783,000) in fuel alone.
Meanwhile, Michelle Wiese Bockmann, an analyst at Lloyds List Intelligence, which advises the maritime industry, told the BBC that some shipowners were continuing the same voyages through the Red Sea because their contracts did not allow them to do otherwise.
Rates for moving cargo by sea hit record highs during the pandemic. Since attacks on ships in the region began, container traffic and commodity prices have rebounded.
According to the Drury World Container Index, the price for a 40-foot container was $3,072 on Jan. 11, ahead of U.S. and U.K. strikes on Houthi targets in Yemen.
“So it has a real impact on the everyday lives of people around the world.”