Moody’s Investors Service has issued a warning regarding potential oil price volatility and heightened shipping costs amidst escalating tensions in the Red Sea. The American credit rating agency emphasized that ongoing disruptions to shipping could lead to increased marine insurance rates, impacting various sectors.
According to Benedicte Andries, assistant vice president-analyst at Moody’s, the situation may result in further fluctuations in oil prices and spikes in shipping rates and marine insurance. However, she noted that these price increases are not expected to significantly impact inflation and monetary policy outcomes.
In a downside scenario with more severe shipping disruptions in the Middle East, Moody’s anticipates a material increase in credit risk for issuers in European retail, general manufacturing, auto manufacturers and suppliers, along with a sustained impact on market conditions and inflation.
The International Monetary Fund’s (IMF) Middle East and Central Asia department director, Jihad Azour, highlighted that Houthi attacks on cargo ships have led to a nearly 30 percent reduction in Red Sea container traffic. This decline in shipping volume and increase in shipping costs have adverse economic consequences on the broader region, compounded by the Israel-Hamas conflict.
Recent reports from the United Nations revealed over a 40 percent decline in commercial traffic through the Suez Canal in the last two months due to attacks by Yemen’s Houthi rebels. Rolf Habben Jansen, CEO of Hapag-Lloyd, commented that ongoing attacks on cargo vessels in the Red Sea by Houthi rebels are unlikely to cease soon, prompting shipping companies to seek alternative routes.
The Suez Canal, which connects the Red Sea to the Mediterranean, accounts for approximately 12 percent of global trade, according to a January report from the IMF. About 15 percent of world shipping traffic passes through the canal, making it a vital source of foreign currency for Egypt.
