Energy Market Update – Dire Straits

We see limited meaningful price impact relating to potential disruption to Suez Canal transit owing to Houthi attacks near the Bab al-Mandab Strait. A significant portion of crude and oil products transiting the s traits is Russian, which given the growing relationship between Moscow and Tehran we would assume is off limits to the Houthis. On the LNG side, there is limited cost difference for a US shipper between a Suez vs Cape of Good Hope transit (with cargoes having to cross the entire Atlantic in either case). Relatively cordial relations between Tehran and Doha likely limit the risk to Qatari LNG exports (most of which head east to Asia, in any case). Whilst there are some specific vulnerabilities, most notably European middle distillate imports from Middle Eastern and Asian sellers (particularly jet), we would see any re-route in a worst-case scenario situation priced as additional inefficiency, with location spreads widening. However, this is largely the same dynamic that the market has negotiated since the broad re-route of Russian material out of Europe (and replacement barrels into Europe) since 2022, with the Cape of Good Hope route relatively well established. The market will incorporate this inefficiency but should stop short of scarcity pricing.