Houthi threat notwithstanding, it’s smooth sailing for Russian oil through Red Sea

The recent spate of attacks on commercial vessels by Yemen-based Houthi rebels have not impacted flow of Russian crude through the Suez Canal-Red Sea route, even as a number of global shipping lines and oil companies are now avoiding the important global trade artery. Tankers carrying Russian crude have not rerouted, and even the fresh cargoes leaving Russian ports are sticking to the Red Sea route to reach Asia, instead of going all the way around Africa via the Cape of Good Hope, as per data from commodity market analytics firm Kpler.

Russian oil cargoes departing from the North Sea and Black Sea ports take the Suez Canal-Red Sea route to reach Asia, specifically India and China, which are currently the biggest buyers of Russian crude. Oil and shipping analysts do not foresee tankers carrying Russian oil coming under attack in the region as Russia is perceived as Iran’s ally. The Houthi rebels are widely believed to be backed by Tehran.

“So far, it appears to be clear that Russian cargoes have a kind of safe passage through the Red Sea. They have been largely immune to the crisis and given the equation between Iran and Russia, it is likely to stay that way. It would be a surprise if the Houthis go after Russian oil passing through the region,” an oil market analyst said on condition of anonymity.

Data on India’s December crude oil imports corroborates the lack of impact of the Red Sea crisis on Russian oil flows…Prior to December, the Suez Canal and the Red Sea accounted for around 10 per cent of global crude oil flows and 14 per cent of petroleum product flows. But as a number of major shipping companies are now avoiding the route, choosing instead to go around the African continent via the Cape of Good Hope, the share of global oil and petroleum product flows passing through the Suez Canal has dropped significantly. Russian crude, however, stands out as an exception.

“Crude oil transits through the Suez Canal were 1.86 million bpd (barrels per day) in December, the lowest number since January 2022, which was also the last month before the start of the Russia-Ukraine conflict. Before that, Russian oil sailing to India was a rare phenomenon,” said Viktor Katona, Kpler’s Lead Crude Analyst. He added that Russian oil cargoes are accounting for nearly half of the crude oil transiting through the Suez Canal.

In the aftermath of the war in Ukraine, as Western sanctions on Russia altered global crude oil flows, India and China emerged as the biggest buyers of Russian crude, accounting for most of Moscow’s oil exports. Prior to the war in Ukraine, Russia was a marginal player in India’s oil imports. However, as the West began shunning Russian oil following Moscow’s February 2022 invasion of Ukraine, Russia started offering deep discounts on its oil to willing buyers. Indian refiners started lapping up the discounted barrels, catapulting Russia to the top spot on the list of India’s oil suppliers.