INSIGHT: The Impact of Red Sea Attacks on Bunker Markets

Robin Meech, Managing Director, Marine and Energy Consulting Limited. Image Credit: Robin Meech

The recent attacks on merchant vessels in the Red Sea will have two main impacts on the bunker markets.

Firstly, the diversion of vessels round the Cape of Good Hope will increase global bunker demand and secondly the attacks will deter shipowners from bunkering in the Rea Sea ports as they minimize their time in a war risk zone.

The impact of the diverting vessels round the Cape has been estimated at an additional 7 million tons of bunkers were the conflict to continue for a year, However, Suez Canal transits are reported to be reduced by about 30% and there is already hope that the attacks will diminish as a result of compromise from the Houthi resulting from international pressures.

There is likely to be a diminished bunker liftings in the Rea Sea ports but with the exception of Djibouti, there has never been an extensive bunker only market in Suez, Yanbu or Jeddah. The imposition of a nearly ten times increase in was risk premiums will further deter vessels from extended their time in the Rea Sea. Vessels calling at these ports to work cargo, such as tankers shuttling between Yanbu and the Sumed pipeline can be expected to continue to bunker in Yanbu. Since mid-November when the attacks started Jeddah would have appeared to offer more competitive prices but there is no evidence that this has any significant effect on bunker liftings in the port.

Mauritius, and to a lesser extent, Walvis Bay have benefited by the diverted traffic bunkering enroute to and from Asian ports. This bounty has been augmented by the demise of Algoa Bay where bunkering has still not reached full capacity due to regulatory conflicts. However, some of the larger liner vessels are bunkering at the ports in Europe and Asia avoiding bunkering in less familiar ports when attempting to catch up on their schedules.

The ambition to catch up on schedule has also resulted in speed increases particularly for liner vessels. Increases from 16 to 20 knots have been reported as a result of diverting round the Cape further increasing global demand. For example, a 14,000 teu liner will encounter $100k increase in bunker costs. At typical T/C rates of $50k/day the diversion increases charter costs by nearly $350k one way. Increases in costs equivalent to $40/teu.

Diverting around the Cape relieves operators of paying Suez Canal dues. In 2023 the Suez Canal revenues were $750 million per month with 2,100 transits, an average fee of $360,000 per transit which goes some way to reducing the additional time and bunker costs accrued when diverting round the Cape.

If the conflict continues to cause the diversion of some 30% or 40% of potential Suez traffic round the Cape global bunker demand will be increased by 600,000 tons per month at a cost of $400 million to owners and charterers with a loss in revenue of $260 million to the Canal Authority. This additional bunker demand will see increases in liftings in the ARA, Fujairah, Singapore, and Mauritius with a dip in demand in the ports within the Mediterranean and Red Seas including Djibouti.