US attack in Yemen means for oil pricesUS attack in Yemen means for oil prices

On Thursday night, the United States, in collaboration with the United Kingdom, conducted airstrikes against Houthi targets in Yemen, escalating a longstanding conflict centered around a crucial shipping route. This area holds significant importance for oil prices and inflation.

The military operation was a response to a series of attacks by Houthi rebels, backed by Iran, on freight ships in the Red Sea over several months. In anticipation of potential threats from the Houthis, major shipping companies had already altered their routes, which somewhat mitigated the immediate impact of the U.S. and U.K. intervention, according to analysts.

Houthi Defence Minister Mohammed Nasser Al-Atefi warned of retaliation in response to the attack by the U.S. and U.K. If this military action triggers a broader escalation of the Israel-Gaza conflict, it could exacerbate supply chain disruptions, leading to increased prices for essential goods. Analysts have expressed concerns that the U.S. airstrikes might contribute to a rise in oil prices and inflation, with a 3% surge already observed in early trading on Friday due to fears of such a scenario.

According to Jason Miller, a supply-chain management professor at Michigan State University, the worst-case scenario for the supply chain would be a full-fledged battle between the United States and Iran, which would result in a huge increase in energy costs, affecting everything else. He stated that most carriers had already decided to detour around the Red Sea before to the latest military activity, thus the situation in the area is rather calm.

According to the Pentagon, Houthi rebels have conducted more than 100 strikes on at least ten cargo boats since October. These assaults, which largely targeted ships near the Suez Canal in the Red Sea, which handles around 12% of global maritime traffic, forced major shipping firms like as MSC, Maersk, Hapag-Lloyd, and BP to move their boats to other routes.

Rerouting, notably at Africa’s southern edge, has extended journey time by around 30%, placing a strain on ship supplies. Jason Miller said that longer routes imply fewer ships are available at any one moment, resulting in a bottleneck effect. As a result, short-term rates, known as spot pricing, have risen, driving up the cost of shipping commodities.

According to a recent S&P Global Commodity Insights study, the price of a 40-foot container ship has risen to roughly $6,000, up from $2,000 the previous year. This increase in spot prices is projected to affect small enterprises, resulting in increased import expenses. However, large companies such as Walmart and Home Depot are unlikely to see significant repercussions since their shipping prices are dictated by pre-existing contracts, according to Jason Miller.

The current US war on Yemen may add to the diversion of ships from the Suez Canal. According to Christopher Tang, a supply chain expert at UCLA Anderson School of Management, insurance firms would be unwilling to give coverage due to concerns about possible harm from an assault. This uncertainty may lead to more ships seeking alternate routes, exacerbating the maritime industry’s woes.

Christopher Tang states that oil ships in particular may choose to avoid the danger involved with the Red Sea issue due to worries about possible environmental catastrophes and worker casualties. Tang stressed that it would be irresponsible to overlook the potential danger.

It is anticipated that the Red Sea issue would have an influence that transcends regional borders. Europe’s consumer prices will probably be significantly impacted. Furthermore, there may be price hikes for a number of consumer goods in the United States that are imported from Southeast Asian nations like Vietnam and India. This is due to the fact that these items usually pass via the Suez Canal, and several experts have pointed out that the current situation there is creating problems.

Even though trade problems are still going on, some experts warn that the current effect on U.S. prices might not be very big because shipping costs are only a small part of the total cost of an average item.

Analysts stress, though, that if the war in the Middle East gets worse, it could have a much bigger impact on both inflation and oil prices. Rob Handfield, an operations and supply chain management professor at North Carolina State University, said that this kind of situation could lead to a mess.

If a fight between major oil makers like Iran and Israel gets worse, oil prices could drop quickly, which could make it more expensive for companies to run and for things to get to where they need to go. In turn, this would cause prices for most people to go up. UCLA professor Christopher Tang said that if things get worse, they could really turn into a disaster.

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