Europe hit hardest by surging oil prices caused by Red Sea crisis

Europe will be hit the hardest and face the biggest challenges concerning restricted oil supplies following the recent attacks by the Iran-aligned Houthi. That's the view of Jonathan Lamb, oil and gas analyst from the investment bank Wood and Company.

The Houthis have launched waves of exploding drones and missiles at commercial and navy vessels since November 19, responding to Israel's military operations in Gaza. In response, shipping firms have diverted hundreds of vessels around southern Africa's Cape of Good Hope, a journey that takes 10-14 days longer and is more costly than the passage via the Red Sea and Suez Canal.

"I think on the actual oil price itself, whenever there is a crisis of this kind, oil prices tend to shoot up quickly and then settle afterwards. I don't think that it will have a long lasting, significant impact on the oil price," Lamb told CGTN Europe's Global Business programme.

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"However, we have to remember that the one region of the world that's really hit by this crisis in the Red Sea is Europe. Asia is going to be able to get its crude oil and its products and its natural gas as usual. The U.S. doesn't buy very much from the Middle East. So it's really an impact on Europeans. 

"It means their supply lines are now much, much longer than they were when that oil could just come up through the Suez Canal. I think this is going to create a lot of challenges in shipping. 

"Some companies are going to find that they have lower inventories than they thought they would. So it will have an impact on those refiners in the European area and also on shipping costs, because we need to ship all the way around Africa rather than a much shorter route."

The Houthi attacks target a route that accounts for around 15 percent of the world's shipping traffic and acts as a vital passage between Europe and Asia. 

Despite the ongoing uncertainty over the security of the region, Lamb still feels huge movements in the price of oil are unlikely, although he does have concerns for the volatility of the diesel market.

"The oil price may go up a little bit more. I don't expect very much more. We are in a market where oil prices have been declining," Lamb added. "The market appears to be well supplied in general. So in that kind of market, even these impacts don't really push the price up that much. 

"If we are in a much tighter market, maybe that would be different. I do think, though, that the price of diesel is going to go up a lot in the European market. 

Lamb pointed out that Europe used to get most of its diesel imports from Russia until the war with Ukraine began. Now it is relying on diesel refineries in the Middle East, India and even China - all of which would have used the Red Sea route to supply its customers in the West. Lamb believes the biggest concern should be over the impact this will have on gas station prices in Europe - a cost that will be felt by the general public and not just big business.

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