Oil: Red sea disruptions reshape global flows – Societe Generale

Societe Generale analysts Michael Haigh and Jeremy Sellem describe how Red Sea and Bab al-Mandab security risks are forcing Oil cargoes onto longer, more complex routes. They highlight sharply reduced Red Sea flows, costly diversions via the Suez Canal, SUMED pipeline and Cape of Good Hope, and stress that the main challenge for Oil now lies in safe delivery rather than production.

Red Sea risks lengthen oil routes

"Like Odysseus navigating a succession of hazards on his voyage home, oil cargoes leaving the Red Sea are now being forced through an increasingly complex and dangerous journey. What was once a relatively direct route to Asia (pre-war) now involves detours, transhipments and multiple chokepoints, with each stage introducing new risks. The result is that a barrel of oil must travel farther and pass through more obstacles before reaching its destination."

"The Bab al-Mandab has now emerged as another inevitable obstacle in this modern voyage. Based on the three confirmed incidents in the Red Sea last week and the composition of tankers that crossed successfully, the Houthis appear to be targeting Saudi-flagged vessels, while Chinese-flagged tankers carrying Saudi crude have continued to transit Bab al-Mandab. Total Red Sea oil flows have dropped by 4 mb/d since July 1, driven by a significant 3.7 mb/d decline in Bab al-Mandab traffic."

"As an alternative to navigating through the Bab al-Mandeb, Saudi crude is first moved through Saudi Arabia's East-West Pipeline to Yanbu, where it is loaded onto a VLCC. As fully laden VLCCs cannot transit the Suez Canal, the cargo is transferred into Egypt's SUMED pipeline, reloaded in the Mediterranean, and then shipped through Gibraltar and around the Cape of Good Hope. To avoid the missile and drone threat near the Bab al-Mandab and Gulf of Aden, vessels continue across the Indian Ocean and through the Strait of Malacca before reaching their destination."

"Lastly, in Kazakhstan, disruptions to CPC exports, elevated refinery outages in Russia, and recurring attacks on shipping infrastructure demonstrate that the market remains exposed to further setbacks. Just as Odysseus faced a new challenge whenever one obstacle appeared behind him, the oil market has moved from one disruption to another without returning to normality. The central theme is clear: the greatest challenge is no longer producing the oil but safely delivering it through an increasingly hazardous journey."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)