Global oil prices surged on Monday after BP announced that it would halt tanker shipments through the Red Sea. This decision comes as the Yemen-based Houthi armed group continues to launch drone and missile attacks against merchant ships, making the shipping lane increasingly dangerous. The attacks, which have been ongoing since the October 7 Hamas-led attacks on Israel, have targeted vessels owned and operated by Israel, as well as any ships heading for Israeli ports. Both the Houthis and Hamas are supported by Iran.

BP's announcement has raised concerns about potential disruptions to shipments through the Suez Canal, a crucial route for both crude and refined oil products. The canal serves as a major conduit for oil from countries like Saudi Arabia and Iraq, where BP operates a major oil field, to Europe and other parts of the world. If attacks on shipping persist, oil companies and other shippers may opt to stop using the Suez Canal, leading to a prolonged disruption in the flow of oil.

Major shipping companies, including Evergreen, Hapag-Lloyd, Maersk, and Mediterranean Shipping, have already stated that they will temporarily halt vessel transits through the Red Sea due to the heightened risks. Analysts have noted that the volume of oil and oil products flowing through the Suez Canal has significantly decreased this month, estimated to be about one-third of the usual flows. If this slowdown continues, tankers will be forced to take the longer route around the Cape of Good Hope in Africa, resulting in increased fuel consumption, higher freight rates, and insurance premiums.

BP's decision to suspend shipments through the Red Sea has had an immediate impact on global oil prices. Brent crude, the international oil benchmark, rose by approximately 3% in trading on Monday, reaching nearly $80 per barrel. This increase comes after a period of downward pressure on oil prices due to higher production, particularly from the United States, and concerns about weak global economic conditions.

The United States and other countries' military forces have been actively combating the Houthi attacks, shooting down over a dozen drones in the region over the weekend. U.S. Defense Secretary Lloyd J. Austin III has warned that Iran's support for these attacks must cease. However, analysts suggest that if the Biden administration does not take aggressive action to address the situation, the Houthi Red Sea campaign is likely to continue. On the other hand, if the administration chooses to strike in Yemen, there is a risk of heightened escalation with Iran, the Houthis' partner and sponsor.

The surge in oil prices and the potential disruption to global trade caused by the attacks on shipping in the Red Sea highlight the geopolitical tensions in the Middle East. The strategic importance of the Bab el-Mandeb Strait, which separates Africa from the Arabian Peninsula, cannot be understated, as approximately 10% of global trade flows through this area. With the Suez Canal being the shortest shipping route between Asia and Europe, any prolonged disruption could result in ships having to take the longer route around the Cape of Good Hope, leading to increased shipping costs and delays.

Overall, the situation in the Red Sea poses significant challenges for the oil industry and global trade. The escalation of attacks by the Houthi armed group, supported by Iran, has prompted energy companies and shipping giants to rethink their operations in the region. As the tensions persist, the repercussions could be felt by consumers through higher fuel prices, increased shipping costs, and potential delays in the delivery of goods. It remains to be seen how the international community and the Biden administration will respond to the ongoing threat to shipping in the Red Sea.