Oil prices rise as shippers suspend Red Sea route amid intensifying Houthi attacks

Oil prices rose Tuesday as tankers shun the Red Sea on the back of heightened attacks by Iran-backed Houthi militants which have disrupted international shipping routes.

The West Texas Intermediate contract for January rose 97 cents, or 1.34%, to settle at $73.44 a barrel. The Brent contract for February gained $1.28, or 1.64%, to settle at $79.23 a barrel.

In recent weeks, Yemen’s Houthi rebels have launched a series of drone attacks against commercial ships crossing the Red Sea. Major shipping lines and oil transporters suspended travel through the Red Sea on Friday, after more than a dozen vessels came under attack since the start of the Israel-Hamas war in early October.

Shipping giants Maersk, Hapag Lloyd, Mediterranean Shipping Company (MSC), CMA CGM and Evergreen announced they were diverting all scheduled journeys with immediate effect. Oil giant BP on Monday joined the transportation giants and paused shipping through the Suez Canal on the back of “deteriorating security” in the Red Sea.

“The energy markets are beginning to price in disruption of global daily oil demand of which 9% flows through the Suez Canal,” NewEdge Wealth’s Senior Portfolio Manager Ben Emons wrote in a daily note, adding that Brent is “particularly sensitive” to these disruptions.

He noted this will also have spillover effects on other commodities like coffee, soybeans, nickel and palm oil, given how an estimated 12% of non-oil commodities’ trade flows go through the Suez Canal.

Goldman Sachs expects the overall impact to be limited.

“The disruption is unlikely to have large effects on crude oil and LNG prices because vessel redirection opportunities imply that production should not be directly affected,” analysts at the investment bank said in a report.

In a statement released Sunday, Chairman and Managing Director of the Suez Canal Authority Ossama Rabiee, said that since Nov. 19, 55 vessels had rerouted through the Cape of Good Hope — the longer journey around the south of Africa, while 2,128 vessels had passed through the Suez Canal.

The U.S. has pledged an international effort to combat the situation, expanding a multinational maritime force in the Red Sea to safeguard against the attacks.

The new security initiative, named Operation Prosperity Guardian, aims to deter further Houthi attacks as the U.S. eyes potential flare-ups of regional conflict amid the Israel-Hamas war. Identified participating nations in the defense pact include Bahrain, Britain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain.

— CNBC’s Lori Ann LaRocco contributed to this report.