Ongoing missile and drone attacks from Yemen’s Iran-backed Houthi militants on ships in the Red Sea have caused several commercial shippers to reroute all vessels from the area, sparking concerns that the trade disruptions could drive up oil and gas prices.
Oil giant BP and tanker group Frontline are just two of the major companies diverting their ships from the Red Sea and sending them around South Africa, a move that adds up to two weeks’ transport time to each shipment.
Some experts say an extended shutdown of shipments in the area threatens to drive up oil and gas prices.
Oil analyst Stephen Schork, principal of the Schork Group, told FOX Business the delay in shipments that are currently on the water will not translate to higher prices because the economics have already been priced in. But going forward, the new economics of calculating a purchase of oil are going to have to incorporate extra costs such as higher insurance and longer distance traveled, which means later pickup and delivery of the oil.
IRAN’S RED SEA ATTACKS HAVE ‘MASSIVE IMPACT’ ON GLOBAL SHIPPING: BRENT SADLER
“The price of oil is going to have to compensate for the movement, for all these additional costs,” Schork said. “So, it can only have [an] upward push on prices at this point.”
FOX Business contributor Phil Flynn said the situation makes him feel bad for the American driver, who has seen some relief at the pump after a steep run-up in prices over the past few years.
“Everybody thought it was all clear at the gas pump, and now this type of situation is exactly the type of situation that can cause prices to go back up,” he said.
Flynn described the shipments being diverted as a “a costly inconvenience right now” but added that concerns will escalate further if there is a major disruption in supply.
Schork and Flynn both raised concerns over the potential for the situation to escalate and result in a shutdown of the Strait of Hormuz in the Persian Gulf, which would mean a second major choke point for the flow of oil around the world.
MAJOR SHIPPING COMPANIES SUSPEND RED SEA JOURNEYS FOLLOWING HOUTHI ATTACKS
Defense Secretary Lloyd Austin on Tuesday announced the creation of a new international mission working to counter attacks by Houthi rebels on commercial vessels in the Red Sea. The security initiative, dubbed Operation Prosperity Guardian, involves multiple countries, including the U.K., Bahrain, Canada, France, Italy and others.
Meanwhile, a Houthi official told Reuters the group will continue to attack ships in the Red Sea as long as Israel continues its fight in the Gaza Strip. The official also said that only Israeli ships or those going to Israel will be targeted.
Schork says the Red Sea attacks’ impact on the American consumer will depend on how long the disruption lasts. If vessels are only rerouted for a week, there would be a minor impact on energy costs in the U.S.
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“But if this is now part of the new economics for the foreseeable future, then in the hear and now over the next several weeks, this will have an upward push on prices at the pump and the oil furnace to heat your homes,” he said.
FOX Business’ Greg Norman, FOX News’ Danielle Wallace and Reuters contributed to this report.