Attacks On Ships In The Red Sea Fueled Supply Concerns

Attacks On Ships In The Red Sea Fueled Supply Concerns
Stéphane Renevier, CFA

2 months ago2 mins

What’s going on here?

Attacks on cargo ships in the Red Sea fueled concern for supply of oil and goods.

What does this mean?

Yemen’s Houthi movement intensified attacks on fuel tankers and cargo ships in the Red Sea, sparked by the ongoing conflict in Gaza. That’s big: the Red Sea links some of Europe and Asia’s biggest traders. In fact, around $1 trillion worth of goods – that’s 12% of all global trade – pass through the canal every year. The US has already pulled together an international naval task force and scoped out military options in response, but the Houthis movement seem undeterred. The group has threatened further retaliation if the US calls on that force, and it has a track record of following through: previously claimed attacks include drone strikes on major oil facilities in Saudi Arabia.

Shipping costs climb sharply

Why should I care?

For markets: Goldman says relax.

The attacks also pose a risk for all-important oil, which is why major shipping companies like BP, MSC, and Maersk are suspending some routes and taking the long way round instead. And because the 100-plus ships that are taking the scenic tour around Africa will cost more and take longer to arrive, the effects may be seen in higher oil prices – a catalyst for inflation. But rest assured: Goldman Sachs thinks the longer-term effect on oil and gas prices will be capped, predicting prices will rise by only a few dollars per barrel in the worst-case scenario.

Alternative shipping routes
Source: Dimerco

The bigger picture: Fail to prepare, prepare to hurt.

Brace yourself for 2024: international relations are already heady, and that’s before a record-breaking two billion voters from 50 countries head to the election polls. Sure, the effects of political changes and geopolitical shocks level out over time, but global volatility remains one of the biggest risks for investors in the shorter term. You’ll want to fortify your portfolio in advance, then, whether that be through more diversification or safe-haven assets like gold.

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