A month of attacks by Houthi rebels from Yemen against vessels transiting the Red Sea have seriously threatened the stability of global trade. In the stretch between the Strait of Bab el-Mandeb (to the south) and the Suez passage in fact the 12% of world tradefor a value of $1.2 trillion a year.
The shipping companies, frightened by the risks ofescalation between the pro-Iranian Shiite front and the Western front in Israel's defense, they chose to divert course, accepting the extra costs for circumnavigate Africa and reach Europe. However, the Red Sea crisis has not yet affected the energy market, particularly as regards oil. The reasons are multiple.
The importance of the Middle Eastern straits for the energy market
The entire framework of global energy markets has been based on for decades safety and continuity of hydrocarbon flows through the canals and seas of the Middle East. Much of the energy that powers the world, both in the form of crude oil and natural gas, comes from the Middle Eastern region and passes through choke point as Bab el-Mandeb and it Strait of Hormuz.
As pointed out by Foreing Policythere was a time when Iran threatened the West extremely effectively, causing global prices to rise, “simply” by attacking the Strait of Hormuz in the Persian Gulf. Again through the Yemeni Houthis, Tehran also directly struck Saudi Arabia's main oil facilities.
Today, however, in the midst of a regional conflict that is spreading and not sparing effective and repeated attacks on commercial shipping, the energy markets do not seem to really feel the pinch. “There is a shopping list of titles that, just ten years ago, they would have sent the market into shockwhile today prices hardly fluctuate,” he highlighted Richard Bronzeco-founder of the London-based consultancy Energy Aspects.
How the energy market has withstood the brunt of conflict in the Middle East
The new escalation between Israel and Hamas-Houthi, complete with military responses by US and British ships off the coast of Yemen, has seriously threatened this delicate and central geopolitical balance. But the oil market has surprisingly held up, and in a big way. The price of crude oil Brent (commonly used for refining into diesel and petrol) is actually lower than the value at the beginning of December and stands at 78 dollars per barrel), while the price of WTI (West Texas Intermediate, usually used for refining gasoline) has moved little since the end of November and is hovering around $73 a barrel.
How can such resistance to the impact of conflict be explained? First of all, it must be clarified that the Strait of Bab el-Mandeb, the southern gateway to the Red Sea, is less important than the aforementioned Strait of Hormuz regarding the transportation of energy to the West. The first is in fact a convenient route, which reaches Europe through Suez, but has alternatives; the second is instead an indispensable route for oil supplies. Another “secret” lies in the very structure of the oil market, which it presents more numerous and effective “shock absorbers”. than expected (in the meantime with the Suez Canal crisis, Italians risk spending over 400 euros more per year).
We were also able to verify this with the war between Russia and Ukraine: with the production cut by theOPEC and Russian oil under Western sanctions, the whole world expected that supply would have great difficulty keeping up with demand. Instead oil production recorded record numbers by other countries, first and foremost United States, Brazil, Canada and Guyana. The same Iranstill the target of American sanctions, has even guaranteed around half a million more barrels per day to global production.
The role of unused production capacity
However, the real “superpower” of the oil market is only one: the so-called unused production capacity (“spare production capacity”). OPEC, the oil producing cartel, continued to cut its production in a vain attempt to support prices. A strategy that didn't entirely work, but which produced a beneficial side effect: the exploit of unused production capacity, mainly by theSaudi Arabiacapable if necessary of producing approx 5 million barrels of crude oil per day. An enormous amount, if compared to the same value that Riyadh recorded in 2008, the year in which oil reached unprecedented heights in price.
In cases of geopolitical tensions or international conflicts, unused production capacity therefore represents an enormous shock absorber that reduces supply-related risks. Also contributing to the stability of the energy market was the fact that global demand for crude oil was less consistent than expectedespecially towards the end of 2023. In its latest report on the oil market, the International Energy Agency it predicts the trend will continue with “healthy supply growth” throughout the year, “in parallel with demand growth that will be half that of 2023 due to adverse economic factors and environmental contingencies.”
Finally we must consider that the attacks by the Houthis, however disastrous for commercial shipping companies such as Maersk forced to divert the route of the container ships, they have not yet hit oil tankers or crude oil production plants. There is a specific reason also in this case: the truce agreement between Saudi Arabia and Iran, brokered by China, which has safeguarded some of the world's most important oil facilities by keeping them out of the line of fire. Unlike 2019, when Iranian drones targeted two large crude oil processing plants on Saudi territory.
The energy role of the United States
In addition to representing the global hegemon and therefore the leadership of the coalition directly involved in the defense of Israel and against Iran, the USA have changed the cards on the table of the energy market also with the increased production of oil, which currently exceeds 13 million barrels per day. Translated: one barrel in eight in the world is now produced on American soil.
This is an increasing trend, reducing the importance of those routes that until some time ago were vital and irreplaceable for Europe and the United States itself. However, analysts warn of further risks of escalation in the Middle East. Washington's military efforts in responding to Houthi rebels increases the risk of direct attacks from Yemen against oil tankers and energy infrastructure.
