Yemen Houthi rebels attacked two Saudi Arabian oil tankers in the Red Sea on the 23rd, forcing route diversions that threaten oil costs across Asia. The rebels declared a maritime blockade against Saudi Arabia in retaliation for attacks on Sana Airport in Yemen, prompting vessel rerouting and compounding existing Strait of Hormuz disruptions. Saudi Arabia currently diverts approximately 3.5 million barrels per day through the Bab el-Mandeb Strait to Asian markets including South Korea, Japan, China, and India—a route now under threat—while alternative paths via the Suez Canal or Cape of Good Hope add roughly four weeks to transit times and significantly increase shipping costs for Asian importers.
Red Sea Blockade Increases Asian Shipping Costs and Transit Times
Choi Jin-young, researcher at Daishin Securities, stated that Saudi Arabia has diverted 4.19 million barrels through its East-West Pipeline (Abqaiq oil field to Yanbu port) to bypass the Strait of Hormuz, with approximately 3.5 million barrels heading to Asia via the Bab el-Mandeb Strait as of June. Choi noted that rerouting through the Suez Canal and Cape of Good Hope would add approximately four weeks to transport duration, creating significant cost pressures. Hong Sung-ki, researcher at LS Securities, reported that Bab el-Mandeb Strait oil traffic increased from approximately 4 million barrels to 9 million barrels per day in the second quarter due to Hormuz blockade diversions through Saudi Arabia's alternative pipeline. Hong explained that while the Suez Canal offers an alternative route, its maximum daily capacity reached 7.5 million barrels in 2023, limiting additional transport capacity, and noted that security guarantees for this route remain uncertain. Hong added that the sharp increase in oil transport distances to Asia will inevitably accelerate the depletion of available inventories.
Oil Inventory Depletion Accelerates as Strategic Reserves Near Exhaustion
Choi stated that oil price caps have been maintained through Asian countries' demand suppression measures (vehicle rationing systems, private car usage restrictions, remote work policies) and 410 million barrels of Strategic Petroleum Reserves (SPR). However, Choi noted that demand cannot be permanently suppressed and that SPR release effects will terminate after July. The International Energy Agency (IEA) emphasized that over 1 billion barrels of inventory remain, but Choi warned this would serve only as a temporary measure if the Hormuz and Bab el-Mandeb blockades become prolonged. Choi added that OECD oil inventories, which have plummeted to their lowest levels since 2014, paradoxically only amplify market anxiety.
Russian Refinery Attacks Cut Gasoline Production to 65% of Seasonal Average
Russia's top 10 refinery facilities suspended operations due to intensified Ukrainian military attacks starting in late April, causing gasoline production to drop to 65% of seasonal average consumption levels. Hong identified production decreases and petroleum product export reductions from Russia and Kazakhstan as major contributors to oil supply disruptions, though these issues have received less attention due to focus on the Iran conflict. Hong projected that if worst-case scenarios persist, a global oil shortage could materialize, inventory depletion would accelerate, and oil prices would experience steeper increases than the existing monthly average rise of $5-10 per barrel.
Analysts Forecast Oil Prices May Reach Record Highs Earlier Than 2027
Choi projected that if liquidity effects begin to be reflected belatedly, record-high oil prices could be reached earlier than the original forecast of an average WTI price of $130 per barrel in 2027, while maintaining the existing outlook of an upward trajectory through the end of next year. Hong stated that if the worst-case scenario continues, oil price increases would prove steeper and more inevitable than previously anticipated.
FAQ
What caused the Red Sea oil shipping disruption?
Yemen Houthi rebels attacked two Saudi Arabian oil tankers in the Red Sea on the 23rd and declared a maritime blockade against Saudi Arabia in retaliation for Saudi attacks on Sana Airport in Yemen, forcing vessels to reroute and threatening the Bab el-Mandeb Strait passage that carries approximately 3.5 million barrels per day to Asian markets.
How does the Red Sea blockade affect oil transport to Asia?
According to Choi Jin-young of Daishin Securities, rerouting oil shipments through the Suez Canal and Cape of Good Hope instead of the Bab el-Mandeb Strait adds approximately four weeks to transport duration and creates significant cost pressures for Asian importers including South Korea, Japan, China, and India, while Hong Sung-ki of LS Securities noted that the Suez Canal's maximum daily capacity of 7.5 million barrels (2023 record) limits additional transport options.
When will Strategic Petroleum Reserve releases end?
Choi Jin-young stated that the release effects from the 410 million barrels of Strategic Petroleum Reserves (SPR) will terminate after July, while demand suppression measures cannot be maintained permanently, creating upward pressure on oil prices as OECD inventories remain at their lowest levels since 2014.
