Oil prices traded higher Tuesday as tankers shun the Red Sea on the back of heightened attacks by Iran-backed Houthi militants which have disrupted international shipping routes.
Brent, the benchmark for Nigeria’s crude oil, rose 1.62 percent to $79.21 per barrel as of 7:30 pm Nigerian time, while the US West Texas Intermediate futures gained 1.6 percent to $73.63 per barrel.
In recent weeks, Yemen’s Houthi rebels have launched a series of drone attacks against commercial ships crossing the Red Sea. Major shipping lines and oil transporters suspended travel through the Red Sea on Friday after more than a dozen vessels came under attack since the start of the Israel-Hamas war in early October.
Shipping giants Maersk, Hapag Lloyd, Mediterranean Shipping Company, CMA CGM Group, a worldwide leading shipping group and Evergreen group announced they were diverting all scheduled journeys with immediate effect. Oil giant British Petroleum on Monday joined the transportation giants and paused shipping through the Suez Canal on the back of “deteriorating security” in the Red Sea.
“The energy markets are beginning to price in disruption of global daily oil demand of which 9 percent flows through the Suez Canal,” Ben Emons, senior portfolio manager at NewEdge Consulting, wrote in a daily note, adding that Brent is “particularly sensitive” to these disruptions.
He said this will also have spillover effects on other commodities like coffee, soybeans, nickel and palm oil, given how an estimated 12 percent of non-oil commodities’ trade flows go through the Suez Canal.
Goldman Sachs expects the overall impact to be limited.
“The disruption is unlikely to have large effects on crude oil and LNG prices because vessel redirection opportunities imply that production should not be directly affected,” analysts at the investment bank said in a report.
In a statement released Sunday, Ossama Rabiee, chairman and managing director of the Suez Canal Authority, said that since Nov. 19, 55 vessels had rerouted through the Cape of Good Hope — the longer journey around the south of Africa, while 2,128 vessels had passed through the Suez Canal.
The US has pledged an international effort to combat the situation, expanding a multinational maritime force in the Red Sea to safeguard against the attacks.
The new security initiative, named Operation Prosperity Guardian, aims to deter further Houthi attacks as the United States eyes potential flare-ups of regional conflict amid the Israel-Hamas war. Identified participating nations in the defense pact include Bahrain, Britain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain.
Implication for Nigeria
Africa’s biggest oil-producing country needs the oil price to rise or, in the worst case, remain steady at any price above its revised budget benchmark of $77.96 per barrel to generate N7.69 trillion in oil revenue to partly finance the 2024 budget of N27.5 trillion.
The proposed oil revenue for 2024 is over three times the amount budgeted for 2023, which was about N2.23 trillion.
This means that the Federal Government plans to triple revenue from a sector crippled by challenges, such as oil theft, and infrastructural deficit, among others, which led to declining revenue over the years.