new delhi, Jul 23
A ship carrying Saudi crude oil to India is believed to have turned back to port after Yemen’s Houthi rebels warned they would intercept vessels sailing through the Bab al-Mandab Strait, the strategic waterway linking the Red Sea to the Arabian Sea. Another tanker carrying oil to China also made a mid-sea turnaround, underlining growing concerns over the security of one of the world’s busiest shipping routes. The latest disruption comes as a landmark US-Saudi nuclear agreement threatens to add a new and potentially explosive dimension to an already volatile Middle East. For India, there is one important piece of good news. Ships carrying Russian crude appear to be continuing through the Red Sea unhindered and have not been targeted by the Houthis. On Wednesday, two Russian oil tankers successfully transited the Bab al-Mandab, one bound for India and the other for Singapore. The picture is very different for cargoes leaving Saudi Arabia’s Red Sea export terminal at Yanbu. Tankers sailing from Yanbu to India and other Asian destinations must pass through the Bab al-Mandab and have been specifically threatened by the Houthis. “While it’s only two vessels so far, it suggests owners and operators are taking the threat seriously,” said Matthew Wright, principal freight analyst at commodity intelligence firm Kpler. “If this becomes a broader trend, the implications extend well beyond a handful of diverted cargoes.”
If the threat escalates, tankers may be forced to abandon the Red Sea route altogether. That would mean sailing around Africa’s Cape of Good Hope, adding thousands of nautical miles, significantly increasing freight costs and delaying deliveries by weeks.
The renewed tensions have once again rattled energy markets. Brent crude, the global benchmark, climbed to around $94 a barrel on Wednesday, extending a sharp rise over the past few days as traders priced in the growing risk of disruption to Middle East oil supplies. Goldman Sachs has warned that if the disruption spreads, oil prices could hit $120 a barrel by the end of the year.
The latest developments come at a difficult moment for India’s energy security. In January and February, before the US-Iran conflict erupted, Saudi Arabia briefly overtook Russia as India’s largest crude supplier. By June, however, Saudi crude arrivals had fallen by almost half compared with both the previous month and the same period last year.
Shipping companies are also paying heavily to keep vital oil supplies moving. According to industry sources, some operators are offering sailors bonuses worth as much as six months’ salary to crew ships transiting the increasingly dangerous Strait of Hormuz. Four Indian sailors have died in the past few weeks in the Strait of Hormuz and the adjoining Gulf of Oman. India’s maritime community has suffered further losses elsewhere. Four Indian sailors were also killed only days ago when the merchant vessel Golden Leo was struck, reportedly by Russian forces, after departing Ukraine’s port of Odesa. India formally protested the attack by summoning the Russian ambassador. Around 300,000 Indian seafarers are estimated to be working aboard ships around the world. Saudi Arabia had sought to reduce its dependence on the Strait of Hormuz by dramatically increasing exports through Yanbu on the Red Sea. In June, around 4.4 million barrels of crude a day were shipped from the port via the kingdom’s east-west pipeline, allowing exports to bypass Hormuz altogether. At the same time, Saudi Arabia cut its official crude prices, making its oil increasingly attractive to Asian buyers. But the Houthi threat now places that alternative export route in jeopardy. “Escalation and diversion at the Bab al-Mandab would have immediate consequences for Asian refiners, particularly India, Korea and Japan, which depend heavily on these crude flows,” said Sumit Ritolia, senior analyst at Kpler. Ritolia added on Wednesday: “We are currently not seeing any Saudi crude vessels transiting the strait.” He cautioned, however, that some ships may simply have switched off their Automatic Identification System (AIS) transponders while making the passage.
The growing tension coincides with a landmark nuclear agreement between the United States and Saudi Arabia that has injected a fresh geopolitical dimension into the crisis.
The agreement ends years of stop-start negotiations and opens the door for American companies to help develop Saudi Arabia’s civilian nuclear power programme. The US Department of Energy described it as a “peaceful nuclear cooperation agreement” that will give US firms significant access to the kingdom’s nuclear energy sector. The two countries have also signed a bilateral safeguards agreement, which Washington says is designed to ensure the programme remains peaceful.
However, attention is now focused on what has not yet been made public. US media reports before the announcement suggested the agreement could eventually allow Saudi Arabia to enrich uranium on its own soil, although the final details have yet to be released.
Critics say that while uranium enrichment is essential for civilian nuclear power, the same technology can also be used, if enrichment levels are increased, to produce the material needed for a nuclear weapon.
Saudi Arabia has previously said that if Iran were ever to acquire a nuclear bomb, it would seek one too, fuelling fears that the agreement could accelerate a regional nuclear arms race.
Before the deal was announced, US Secretary of State Marco Rubio sought to reassure critics, saying Washington would not sign any agreement “that leads to the risk” of nuclear proliferation.
There is growing speculation that Iran’s Revolutionary Guards have encouraged the Houthis to rejoin the conflict in response to the US-Saudi nuclear agreement. The prospect of Saudi Arabia developing its own uranium enrichment capability has alarmed not only Iran but also several Gulf states and India, where policymakers are closely watching the changing balance of power in the region.
Energy analysts have long warned that renewed Houthi attacks in the Bab al-Mandab could leave India and other Asian economies facing serious disruptions to crude supplies. Geopolitical analysts also question whether the United States has the military capacity to simultaneously safeguard both the Strait of Hormuz and the Bab al-Mandab if tensions continue to escalate.
Until recently, the Houthis were widely believed to have an informal understanding with Saudi Arabia to stay out of any direct confrontation. It remains unclear why that arrangement appears to have broken down.
Energy analyst Anas Alhajji believes that even if Riyadh succeeds in restoring its understanding with the Houthis, the damage has already been done. The latest threats are likely to drive up marine insurance premiums, increasing shipping costs for oil cargoes even if no further attacks take place.
For the moment, India enjoys a measure of protection. Around 52 per cent of its crude imports come from Russia, and the Houthis have so far avoided targeting vessels carrying Russian oil. That gives India a degree of insulation until around the middle of September, assuming current supply patterns continue.
At the same time, India has been scouring global markets to diversify its energy supplies, purchasing crude from Russia, Venezuela, the United States, Brazil and Angola. The scramble has come at a price, however, with buyers paying substantial premiums for cargoes, adding to the country’s import bill and putting further pressure on its foreign exchange reserves.
