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Suez Canal blockage by giant vessel likely to disrupt global energy supply chain

Published: Updated:

The blockage of the Suez Canal by a giant container vessel is likely to send a ripple of disruption through the global energy supply chain.

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European and US refiners that rely on the vital waterway for cargoes of Mideast oil may be forced to look for replacement supplies should the blockage persist, potentially boosting prices of alternative grades. At the same time, flows of crude from North Sea fields destined for Asia will be held up.

The world’s busiest maritime trade route has been thrown into turmoil after the container ship ran aground on Tuesday, blocking traffic in both directions. While the vessel is only likely to remain stuck for a couple of days, that’ll be long enough to scramble some energy flows, creating an extra headache for refiners, traders and producers already coping with the pandemic’s fallout.

“There are plenty of alternative trades for European importers to avoid the Suez Canal,” said Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.

Buyers in Europe and the US may now look to other regions, including the US Gulf, North Sea, Russia and West Africa, according to shipbrokers. Varieties including Mars Blend from the US Gulf, Urals from Russia, and even Asian and Russian Far East grades are likely to get a boost as a result of any increased demand, an analyst and one of the shipbrokers said.

The logistical challenge comes at a volatile time. Global benchmark Brent sank about 6 percent on Tuesday on concern near-term demand may prove weaker than expected amid renewed lockdowns. On Wednesday prices fluctuated, with at least 100 vessels waiting to transit between the Red Sea and Mediterranean.

The canal is a crucial route for energy flows. For oil, it is mainly used to transport Middle Eastern crude to Europe and the US, as well as shipping fuel oil from the west to the east. The canal can take fully-laden Suezmax vessels that carry about 1 million barrels and bigger Very Large Crude Carriers, as long as they transfer some cargo out of the vessel before transiting.

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