Highlights

  • Oil prices surge due to Suez Canal clashes, analysts foreseeing temporariness.
  • The Red Sea crisis escalates, and shipping risks impact global trade routes.

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Red Sea crisis sparks temporary surge in oil prices

The Red Sea, a vital trade route, handles 10% of global shipments. Amidst heightened tensions from the Israel-Hamas conflict, Yemen's Houthi rebels targeted vessels bound for Israel in solidarity with Palestinians.

Red Sea crisis sparks temporary surge in oil prices

Oil prices experienced a slight surge on December 18 due to clashes in the Suez Canal. However, analysts are quick to point out that this uptick may be temporary, given the current subdued demand, reported Money Control. The benchmark Brent crude oil rose by 0.8%, reaching $77.18 per barrel, as major shipping companies announced their decision to avoid the route.

The Red Sea, a crucial global trade artery, plays a significant role in the movement of goods. It accounts for 10% of the world’s oil, grain, and consumer goods shipments. However, shipping risks escalated in the wake of the Israel-Hamas conflict. Iran-backed Houthi rebels in Yemen targeted vessels bound for Israel, showing their support for Palestinians.

Suman Chowdhury, Chief Economist and Head of Research at Acuité Ratings & Research told Money Control, “We do not anticipate a sustained impact on oil prices unless there is a significant escalation. This spike is a result of a rebel attack and is unlikely to persist. Our projection does not exceed $78 per barrel"

The global markets continue to seek a sustainable balance between energy supply and demand. However, a decelerating macroeconomic environment poses challenges to energy demand growth. Additionally, geopolitical events in various regions impact the energy supply. S&P Global highlighted these factors in a report released on December 18.

Despite recent Houthi attacks, oil markets have largely shrugged off the impact. However, concerns are mounting as the attacks intensify. Money control report indicate that the Houthis targeted the Liberian container ship Al Jasrah on December 15. This development signals an expansion beyond vessels directly tied to Israel. The group launched two ballistic missiles, one of which struck the MSC Palatium III.

Also Watch: State-run oil companies slash Jet Fuel prices, easing operational costs for domestic carriers

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