February 27, 2024

For sale: Styrofoam-and-toy-soldier models of the Galaxy Leader cargo ship, seized by Houthi fighters in November 2023.

For sale: Models of the Galaxy Leader cargo ship, seized by Houthi fighters in November 2023.
Photo: Mohammed Huwais/AFP (Getty Images)

The oil comes out the ground, the oil gets sold, the oil gets shipped somewhere, the oil gets turned into gasoline and plastic and all the stuff we use to go about our lives. All of these steps in the process affect the price of the oil itself, and three of them get the most attention, but only one of them is getting more expensive because missiles and bombs are flying all over the Red Sea.

As the US continues—and escalates—its not-quite-a-war with the Houthi rebels in Yemen, shipping markets are ramping up the price to transport crude oil. Bloomberg reports that the cost of moving oil from the Middle East to Asia is up 182% since the US began leading “Operation Prosperity Guardian” to secure the important global shipping channel.

Part of it the issue is that nobody wants their boat to get caught in the crossfire between Yemenis seeking to punish Israel for killing more than 26,000 people in the Gaza Strip and an international coalition doing airstrikes on one of the poorest countries in the world in order to keep container and tanker ships moving. 

Another part of it is that instead of taking the short route through the Suez Canal, many of those ships are going the long way around the Cape of Good Hope in South Africa. Those longer trips are more expensive. Though spot prices for shipping are different than the prices most companies end up paying—most shippers lock in long-term rates via contract—it does threaten to make things more expensive the longer it goes on.

The International Energy Agency, in its latest oil market report, said that all the activity in the Red Sea “raises the risks for supply chain bottlenecks, higher freight costs and renewed inflationary pressures.” Clearly.

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