Update on Red Sea trade flow impacts

While neither Iran nor Israel wants a full-scale war, Iran will likely encourage its proxies to adopt a long-term strategy of military engagement.

• The war in Gaza is the focal point, but growing conflict on Israel’s northern border with Hezbollah, and Houthi attacks on vessels transiting the Bab-El-Mandeb Strait have also been flashpoints of rising discord.
• The war in Gaza between Hamas and the Israeli Defense Force (IDF), looks unlikely to end anytime in the immediate future. A push for some type of ceasefire agreement from the Biden administration has been met with little interest from either the Israeli’s or Hamas, a reality that is unlikely to change for now.
• Israel’s northern border with Lebanon has also become a point of contention as both Hezbollah and the IDF lob rockets at one another. In mid-September, an apparent Israel detonation of Hezbollah pagers, a move that killed at least 12, and injured more than a thousand people, marked a fresh phase of escalation. A continued amplification of kinetic engagement between the two parties looks likely.
• This brings us to the issues in the Red Sea. Beginning in November 2023, the Houthi’s, a somewhat loosely linked Iranian proxy group located in Yemen, began to target commercial vessels passing through the Bab-El-Mandeb Strait, a key waterway linking the Indian Ocean to the Red Sea, Suez Canal, and Mediterranean. It is our view, that similar to Hamas and Hezbollah, the Houthis will continue to target vessels that attempt to transit the Bab-El-Mandeb Strait well into the foreseeable future.

Suez Canal currently accounts for 6% of seaborne crude flows, down from 10% before Houthi attacks began; a surge in Russian volumes via the Suez have provided a partial offset amid European import embargoes.

• Total crude shipments through the Red Sea fell to 2.48 Mbd in August, the lowest reading since January 2022. The Red Sea share of global seaborne crude volumes dropped to 6% last month, down from an intermittent peak of 12% in April 2023 (5.10 Mbd), marking a decline of 40% relative to the 12-month period through October 2023.
• Nonetheless, crude flows have been less affected than most other seaborne commodities due to a surge in Russian exports to Asia, a result of a European embargo on seaborne Russian crude. So far this year, 83% of Western Russian crude flows (i.e. exports of Urals, Siberian Light, and the Arctic grades) passed through the Suez Canal. So far this year, Russian oil exports via the Suez have averaged 1.9 Mbd.

Clean product shipments have largely re-routed around the Cape of Good Hope; like crude, Russian diesel and naphtha continues to flow through the Suez and Red Sea.

• Jet has faced the largest impacts. Just 2% of seaborne flows now transit the Suez, down from 30% (530 kbd) before Houthi attacks in the Red Sea began. Transits via the Cape of Good Hope have surged as an offset, holding at 520 kbd so far this year.
• Seaborne gasoil diesel shipments, of which roughly 15% flowed through the Suez before October 2023, have since fallen to 5%. Like jet, a significant rerouting via the CoGH has taken place. Of the 1.1 Mbd in East-to-West year-to-date, 640 kbd has transited via the CoGH. Russian exports to Asia, and shipments from Saudi’s Yanbu Refinery into Europe have remained sources of gasoil/diesel that are still utilizing the Suez.
• Seaborne naphtha flows have almost completely reshuffled to avoid Red Sea transits. Before October 2023, some 15% of seaborne global naphtha volumes passed through the Suez, a level that has since fallen to just 3%. On a year-to-date basis, West-to-East naphtha flows have managed at 530 kbd, in line with 2023 levels, albeit Suez transits have fallen from 470 kbd last year to 120 kbd since May 2024. These remaining flows are mostly comprised of Russian volumes.

LNG carriers rarely utilized the Suez Canal or Red Sea, even before Houthi attacks, albeit any transits that were taking place have ceased completely this year.

• In the twelve months prior to October 2023, just 8% of global LNG flows went through the Red Sea, a relatively low share compared to other energy and agricultural commodities. Roughly half of the Suez LNG flows last year (32 Mt) originated in the Atlantic Basin. By February 2024, shipments through the Bab-El-Mandeb Strait had come to a complete halt.

Impacts on dry bulks shipments vary depending on the commodity; metallurgical coal, and corn have seen large percentage declines while wheat transiting the Suez has hardly declined at all.

• Contrary to all other commodities that we cover in this report, seaborne wheat volumes in percentage terms moving through the Red Sea as a percentage of the global total have risen since Houthi attacks. In the twelve months prior to October 2023, 19% of all seaborne wheat moved through the Suez, a figure that has since risen to 22% in August of this year. This resilience is driven by continued exports from the Black Sea region to the EoS.
• Prior to October 2023, some 16% of total seaborne met coal volumes passed through the Suez. By August 2024, this metric had plunged to just 1%. In total, 49 Mt of met coal passed through the Suez last year, spread across three main Suez trade flows that have been interrupted by the Red Sea crisis, including Australia to Europe (17 Mt), US East Coast to Asia (15 Mt, to India/China/Japan), and Western Russia to Asia (13 Mt, mostly to India). While the first two routes have almost entirely been rerouted via the CoGH, 90% of Western Russian coal shipment to Asia are still passing through Suez.
• Prior to October 2023, some 12% of global corn volumes were shipped via the Suez Canal, a share that has since fallen to just 4%. US exports to Asia have shifted away from the Gulf Coast via Suez towards West Coast exports from Washington, Oregon, and California. As a result, and contrary to most other commodities, the year-to-date reduction in Suez corn flows has not led to a simultaneous increase in CoGH shipments above seasonal norms.