The Fallout of Red Sea Military Operation Moves on Global Natural Gas Transport

The fallout from the military escalation in the Red Sea, following US-UK attacks on Yemen’s Houthi rebels, is spreading. Maritime trade through the Red Sea and Suez Canal has already been severely impacted. Now, two days of naval attacks by US-UK forces against over 60 Houthi rebel targets in western Yemen are affecting European energy supply security. Qatar, the world’s second-largest LNG exporter, has unexpectedly decided to temporarily halt LNG transport through the Bab El Mandab-Suez Canal area.

Analysts suggest QatarEnergy (formerly QatarGas) made this decision due to increased security concerns despite no prior Houthi targeting of Qatar. Since November 2023, Houthi rebels, backed by Iran, have been attacking vessels in the Red Sea. Qatari sources haven’t yet officially reacted, but indications have been given that increased security concerns have pushed the decision. Since November 2023, the Iranian-backed Houthi rebels have been attacking an ever-increasing number of vessels going through the Red Sea. Houthis have been claiming to target only vessels going or linked to Israel, as a support of Hamas confrontation with Israel. The Red Sea maritime transport route is very important, accounting for around 12% of the world’s maritime traffic.

Five Qatari LNG Vessels Stopped On Route to Red Sea

International shipping trackers, including LSEG, report that at least four Qatari LNG tankers have been delayed due to military actions against Houthi operations. These vessels, loaded at Ras Laffan, are either stopped off the Omani coast or in the Red Sea. The vessels reported are Al Ghariya, Al Huwaila, Al Nuaman and Al Rekayyat. Maritime analysts indicate that rerouting these vessels via the Cape of Good Hope could add approximately 9 days to their normal 18-day journey, increasing the cargo price by about 1-1.30 euros per megawatt hour (MWh). Reuters reported that the owners and managers of these vessels declined to answer questions.

Qatar Delivered 12-13% of European Gas Supplies 2023

Qatar delivered 12-13% of European gas supplies in 2023, and a blockade of the Red Sea route poses a real threat to maritime trade between Europe and Asia. European gas prices may rise if the situation persists, and US LNG cannot cover potential shortfalls. Qatar overall has been shipping more than 75 million metric tons (MMt) of LNG in 2023, according to LSEG data, including 14 MMt to buyers in Europe and 56.4 MMt to Asia.

Europe’s energy supply security, mainly natural gas, is not yet under severe pressure. Due to still historically high gas storage volumes (79-81%) the current removal of these LNG volumes will not push a gas price hike. However, if the situation continues longer, overall European gas prices will be moving up, if US LNG is not able to cover possible shortfalls.

More Houthi Action Expected, Conflict Arena Diffuse

The situation is fluid, and if Houthi statements are implemented, a new escalation in the region is imminent. Energy analysts expect a cautious approach by the Yemeni rebels, but the threat remains. The support for the Houthi movement in the Arab world is increasing. However, several years of Saudi-UAE bombing and on-the-ground military operations against the Houthi rebels have not been able to remove the threat or even diminished Houthi capabilities.

It doesn’t seem rational to expect the Houthis, and its backers, to bow under the current pressure, as the public opinion in the Arab world is showing an increasing support for the Houthi movement. Potential other militias in the region also have threatened to hit Western (perceived pro-Israeli) assets in the region.

Pressure Builds Up on Africa and Arab Littoral States

The economic impact of Houthi attacks on Europe is evident. Some plants are experiencing shortages, and Tesla has shut down its manufacturing plant in Germany. Regional economies, especially Egypt, are severely affected, and threats loom over agriculture and food supplies in Arab and African countries.

Energy markets should also keep an eye on the potential fall-out of the current Qatari moves. Keep in mind Doha is not at war with the Houthi rebels and has very strong links to Hamas (Gaza), Hezbollah, and Iran, but still feels the pressure. If this is taken into account, including the Houthi attack against a Russian oil tanker in the last few days, more could be coming soon. A reaction in oil markets is to be expected, as the Qatari move will reverberate in all. Until now, Saudi oil exports via the Red Sea have continued, but this could soon change.

The signs point to increased risk premiums, prompting insurers to raise fees. Shipowners and brokers see opportunities. After a brief lull in European inflation, short-term increases are expected in product and energy prices.

At the same time, regional economies are hit very hard, especially Egypt. Lower transport fees of the Suez Canal are biting into the already struggling government finances.