Oil Jumps as Red Sea Chokepoint Faces Blockade Risk; Brent Tops $95

Blockade threat spreads from Hormuz to the Red Sea

Brent September futures top $95

Oil prices surged after the Bab el-Mandeb Strait in the Red Sea came under threat of a blockade. If traffic through the strait is halted along with the Strait of Hormuz, the global economy could face a major shock in the second half of the year.

As of 2 p.m. Korea time on July 23, Brent crude for September delivery traded at $95.9 a barrel on ICE Futures Europe in London, up 2% from the previous session. It was the first time in six weeks that Brent had risen above $95. West Texas Intermediate for August delivery gained 1.5% to $88.1 a barrel.

Oil spiked after news emerged that a tanker had been attacked in the Red Sea southwest of Saudi Arabia. Yemen's Iran-backed Houthi rebels claimed responsibility. The group declared a maritime blockade against Saudi Arabia on July 20.

The Bab el-Mandeb Strait connects the Red Sea and the Arabian Sea and serves as a gateway to the Suez Canal. About 4% of global crude shipments pass through the waterway. Together with the Strait of Hormuz, disruption there could choke off 25% of global energy supply.

Saudi Arabia has shipped about 4.5 million barrels a day of crude and fuel through the Red Sea port of Yanbu since the outbreak of war between the US and Iran. About 70% of those cargoes were bound for Asia. Stratas Advisors projected that oil could climb back above $115 to $120 a barrel. Shipping and insurance costs also stand to rise. The Korea Institute for International Economic Policy said ocean freight rates rose as much as sixfold when Houthi rebels attacked commercial vessels in the Red Sea in December 2023.

An energy supply shock could add to inflation pressure and tip the global economy into recession. Indermit Gill, the World Bank's chief economist, told Reuters that the worst-case scenario of Middle East tensions lasting more than six months already appears to be unfolding. He warned global growth could slow to 1.3%.

South Korea's economy would also be hit. Kim Tae-hwang, a professor of international trade at Myongji University, said the country's growth rate could fall to the low-2% range in a worst-case scenario if the Middle East crisis drags on until after the US midterm elections in November.

Han Myung-hyun, Hankyung.com reporter wise@hankyung.com