The increase is linked to the conflict in the Red Sea, which until recently had been one of the main transport arteries of the oil market, including for producers from the Middle East. Tankers leaving the Persian Gulf used to pass through the Strait of Hormuz, the Arabian Sea and the Gulf of Aden onto the Bab el-Mandeb Strait and the Red Sea, from which they brought raw materials to Mediterranean ports through the Suez Canal or through the SUMED oil pipeline in northern Egypt.
The return route used to pass through almost the same points in order to, among other things, bring the supplies of Russian oil and petroleum products to India and China, which sharply increased in 2022–2023. The U.S. Energy Information Administration (EIA) estimates that the transit of oil and petroleum products through the Bab el-Mandeb Strait near the Red Sea increased from 4.9 million bpd in 2021 to 7.1 million bpd in 2022 and 8.8 million bpd in the first half of 2023 (no later data are available).
However, transit through the Red Sea has sharply decreased this year. The number of tankers with oil, petroleum products and liquefied natural gas (LNG) using the route through the Suez Canal has fallen from 835 in April 2023 to 342 in April 2024, according to a special project of the IMF and Oxford University. A popular alternative is the route through the Cape of Good Hope, the use of which is associated with higher transport costs: it takes an average of 19 days to supply oil from the Persian Gulf to Europe through the Suez Canal, while the route through the Cape of Good Hope takes 34 days. Due to the lack of alternatives, this route is now being used more often by a variety of supplier groups: out of the 2.8 million bpd increase in supplies, 15% came from Middle Eastern oil exporters to Europe, 29% from East Asian petroleum producers, and 56% from exporters of oil and petroleum products from the USA and Russia.
The changes in raw material supply routes have been among the reasons for the increase in freight rates. The freight rates for AFRAMAX tankers in the North Sea went up from less than $38,000 per ton in October 2023 to more than $42,000 per ton in June 2024. In the same period, the freight rates for VLCC class carriers rose from $36,000 to more than $38,000 per ton, according to the international shipbroker Fearnleys.
