RIYADH: Ongoing tensions in the Red Sea may lead to oil price volatility and elevated shipping costs, as warned by Moody’s Investors Service.
In its latest commentary, the American credit rating agency highlighted that shipping disruptions are expected to result in increased marine insurance rates.
Benedicte Andries, assistant vice president-analyst at Moody’s, said: “We expect to see further volatility in the price of oil, and spikes in shipping rates and marine insurance but do not anticipate these price increases to materially affect inflation and thus monetary policy outcomes.”
She added: “In a downside scenario, with much more severe shipping disruption in the Middle East, we would see credit risk materially increase for issuers in European retail, general manufacturing, auto manufacturers and suppliers, as well as a more sustained impact on market conditions and inflation.”
Earlier this month, Jihad Azour, the director of the IMF’s Middle East and Central Asia department, stated that Houthi attacks on cargo ships have led to a nearly 30 percent reduction in Red Sea container traffic.
He attributed adverse economic consequences in the broader region to the Israel-Hamas war.
“As you know, the large traffic in the Red Sea is on the container shipping, which has declined by almost 30 percent,” said Azour.
“The decline in volume of shipping as well as also the increase in shipping cost, this is affecting both the value chains and we saw certain number of sectors affected affecting certain number of economies,” he added.
Earlier, the UN disclosed a decline of over 40 percent in commercial traffic through the Suez Canal in the last two months due to attacks by Yemen’s Houthi rebels.
In January, Rolf Habben Jansen, CEO of Hapag-Lloyd, stated that the ongoing attacks on cargo vessels in the Red Sea by Houthi rebels are unlikely to cease soon, forcing shipping companies to avoid the route through the Suez Canal.
He added that a political deal and a mission to protect freight vessels might resolve the issue within six months.
A January report from the IMF revealed that trade utilizing the Suez Canal, connecting the Red Sea to the Mediterranean, constituted roughly 12 percent of global trade in the first half of 2023.
Around 15 percent of world shipping traffic transits via the Suez Canal, the shortest route between Europe and Asia, making it a crucial source of foreign currency for Egypt.
Courtesy: arabnews
