Red Sea Security Risks Alter Trade Flows


Shipping disruptions in the Red Sea, a vital global trade route, have stirred concerns that rising delivery costs could escalate the price of goods just as the United States and Europe appear to be nearing the end of the inflation crisis.

The list of goods includes oil and natural gas, which utilize the Red Sea to move cargoes from producers in the Middle East to consumers in Europe. 

In the first half of 2023, some 12% of total seaborne-traded oil and 8% of world liquefied natural gas (LNG) trade transited the Red Sea, according to the US Energy Information Administration (EIA).

Volumes in both directions – north and southbound – have increased as a result of Western sanctions against Russia, the EIA notes. Europe now imports more oil from the Middle East and less from Russia, while Russia, in turn, exports more oil to India and China.

Due to the ongoing threat of Yemen-based Houthi militants targeting cargo vessels, some shippers have opted for an alternative route, circumventing the Cape of Good Hope. This alternative adds approximately 3,500 nautical miles or 10 days to the Asia-Europe journey.

The drop-off in Red Sea shipping traffic is visible below. The graphic shows AIS signal data, courtesy of our friends at Spire, on October 31 and December 30, 2023.

One way to gauge the impact of the longer voyage times is by examining the amount of oil in storage at key locations for signs of sudden drops or critically low levels.  

The map below shows crude oil storage locations in the region. For each location, Ursa Space provides weekly measurements of floating-top tanks based on satellite imagery.

Crude oil tankers departing from the Persian Gulf en route to the Red Sea face a critical passage through the Bab El Mandeb Strait, a vulnerable chokepoint situated between Yemen and the Horn of Africa, where the risk of attacks from Houthi forces looms.

Saudi crude can opt for an alternative route via the East-West Pipeline, linking oilfields in the eastern part of the country directly to the Red Sea port of Yanbu.

Moving northward, tankers either unload their cargoes at the Egyptian port of Ain Sukhna or navigate the Suez Canal. The SUMED pipeline connects Ain Sukhna to the Mediterranean port of Sidi Kirir.

Within the Mediterranean, several major refineries and storage terminals serve as destinations for these cargoes, including Ashkelon (Israel), Augusta (Italy), Cartagena (Spain), Fos Sur Mer (France), and Milazzo (Italy).

Some loaded tankers exit the Mediterranean via the Strait of Gibraltar, heading towards Rotterdam, Europe’s largest port. Approximately half of the crude remains in the Rotterdam complex, housing five refineries, while the rest is transported by pipeline to nearby refineries.

As of late December, inventory levels have remained stable and comfortably full, according to Ursa data. Crude oil tanks in Rotterdam, for instance, were at 60% capacity.

Despite the current stability, the situation is subject to change, and the oil market remains highly sensitive to developments in the Red Sea. Decisions by major energy companies BP and Equinor to reroute vessels have influenced prices.

Brent crude, a global price benchmark, increased from $73 to $81 last month. Although prices have since dipped below $80, any indications of further disruptions or an escalation of conflict in the Middle East could likely push prices back above that threshold.




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