Two oil chokepoints see traffic drop 30% as security fears rise

The Strait of Hormuz and Bab el-Mandeb Strait saw combined vessel traffic drop by roughly a third on July 21, as escalating regional security tensions pushed international shipping firms to reroute or delay voyages through the two critical energy chokepoints.

"The declines reflect heightened risk aversion among international shipping firms due to ongoing regional security tensions," Kepler, a market intelligence firm, said in a social media post on July 22.

The Strait of Hormuz — through which about 21% of global oil trade passes — recorded just nine vessels on July 21, down 31% from the prior day. The Bab el-Mandeb Strait, the southern gateway to the Red Sea and Suez Canal, saw 29 vessels, a 34% drop. The combined disruption threatens supply chains that move crude oil, refined products and containerized goods between Asia, Europe and the Middle East. Tanker rates for routes traversing the Red Sea have already risen, with war risk insurance premiums climbing for vessels entering the region.

The disruption is already reshaping crude flows. India, the world's third-largest oil consumer, cut its Middle East crude imports by 27% in the April-June quarter to 1.55 million barrels a day, according to Whalesbook data. Refiners instead boosted purchases from Russia by 8.3% to 2.26 million barrels a day — now accounting for 41% of India's total imports — while turning to heavier grades from Brazil, Venezuela and Angola. The Middle East's share of India's import basket has fallen to 31% from 41.4% a year earlier.

India's shift has been dramatic. In the year-earlier period, Middle Eastern suppliers provided 41.4% of India's crude imports. That share has now fallen by more than 10 percentage points in 12 months. Russian crude, meanwhile, has surged from about 20% of India's import basket to 41%, making Moscow the country's single largest supplier. The shift has been enabled by deep discounts on Russian crude — typically $10 to $15 a barrel below Brent — that have helped Indian refiners maintain margins despite higher freight costs.

Rerouting Reshapes Global Oil Flows

India's pivot away from Middle Eastern crude is the most concrete market response so far. Russian crude now supplies nearly half of the country's refining needs, a dependence that carries its own geopolitical and regulatory risks. Indian refiners have previously relied on temporary sanctions waivers to secure Russian oil, and the evolving sanctions regime could complicate future purchases.

Latin American suppliers are filling part of the gap. Brazil, Venezuela and Angola have all increased shipments to India, offering heavier crude grades suited to the country's complex refineries. This diversification reduces India's vulnerability to any single chokepoint disruption but introduces new logistical complexity and quality variability.

Shipping crude from the Middle East via the Cape of Good Hope — the alternative to the Red Sea-Suez route — adds thousands of nautical miles and substantially increases freight costs, pressuring refining margins for Indian oil marketing companies if they cannot pass through the expense to consumers.

The last time both chokepoints experienced simultaneous disruption of this magnitude was during the 2023-2024 Red Sea crisis, when Houthi attacks on commercial vessels forced a prolonged rerouting around Africa. That episode pushed Brent crude above $90 a barrel and contributed to a 40% surge in container freight rates over three months, according to the Baltic Exchange.

Beyond crude oil, the disruption is reverberating through related markets. Gold has attracted bids as investors hedge against supply chain uncertainty, while defense sector stocks in the US and Europe have gained on expectations of increased naval deployments to protect shipping lanes.

If transit volumes remain depressed for another week, Brent crude could see a sustained risk premium of $5 to $8 a barrel, based on the pricing pattern during the 2023-2024 Red Sea disruptions. A prolonged closure or severe restriction at either chokepoint would force a more dramatic rerouting of global energy supplies, potentially pushing oil prices above $100 a barrel for the first time since 2022. The next quarterly data on Indian import volumes and gross refining margins at companies such as Reliance Industries and Indian Oil Corp. will clarify how effectively refiners are managing the higher logistics costs.

This article is for informational purposes only and does not constitute investment advice.