Following drone attacks in Egyptian waters that damaged two natural gas tankers, markets are reassessing the risks to the Suez Canal and related energy infrastructure. As the Strait of Hormuz and the Bab el-Mandeb Strait face disruptions, Saudi oil is increasingly relying on this alternative route.
Following drone attacks in Egyptian waters that damaged two natural gas tankers, markets are reassessing the security risks facing the Suez Canal and related energy infrastructure. Since the outbreak of the war in Iran, this route has been a critical alternative for Saudi oil exports to bypass the Strait of Hormuz.
Currently, Iran and its Houthi allies have launched multiple attacks on tankers passing through the Strait of Hormuz and the Bab el-Mandeb Strait, but Egypt’s Suez Canal and the Suez-Mediterranean Pipeline (Sumed pipeline) continue to play a critical role in transporting Saudi Red Sea energy shipments northward.
The attack occurred on Wednesday near Damietta Port in Egypt. The port is located in an area of one of the Nile Delta’s tributaries, close to the Mediterranean Sea. No group has claimed responsibility for the attack, and no threats targeting the Suez Canal have been publicly issued.
If confirmed as a deliberate attack, this would mark Egypt’s first direct involvement in the expanding regional conflict. On Thursday, Iran’s Foreign Minister Alireza Alaghzadeh posted on X that Egypt is “an important friend and partner in the region, whose security is vital to us.” He did not mention Wednesday’s attack but urged vigilance against what he called “false actions aimed at undermining regional peace.”
The market is concerned that if the risk spreads further, it could impact this globally significant energy transportation hub.
“Routes through the Red Sea, even those detouring farther via the Mediterranean, could still be at risk, threatening up to 5 million barrels per day of oil supplies that currently bypass the Strait of Hormuz,” said Saul Kavonic, Head of Energy Research at consulting firm MST Marquee.
Currently, almost no tankers continue to pass through the Strait of Hormuz, a critical gulf waterway. After the war broke out, Saudi Arabia shifted the majority of its oil shipments to the Red Sea route, exporting through the Yanbu terminal. However, since the Houthis issued threats and launched attacks last week, several tankers have ceased using this route.
According to data from market intelligence firm Kpler, an increasing amount of Saudi crude oil and other energy cargoes are now traveling northward through the Red Sea toward the Suez Canal and the Suez-Mediterranean Pipeline. For Asian buyers, this means energy shipments must now detour around Africa, resulting in longer transit distances compared to the previous route via the Gulf of Aden.
Data shows that the crude oil pipeline connecting the Red Sea to Sidi Kerir Port on the Mediterranean has seen a significant increase in loading volumes, rising from 19.52 million barrels in April to 28.79 million barrels in July, prior to the Houthi militia's threat on July 20 to block Saudi oil exports through the Bab el-Mandeb Strait.
MarineTraffic data shows that around 30 vessels were anchored near Port Said at the Mediterranean end of the canal on Thursday, up from about 20 at the beginning of the week.
“We have observed a significant increase in the number of crude and condensate tankers heading north after loading in the Red Sea,” said George Morris of energy analytics firm Vortexa. He attributes this shift directly to threats from the Houthi militants.
However, some crude oil continues to be transported southward through the Strait of Mandeb. According to Kpler data, southbound flows are currently about half of what they were at the beginning of this month, with approximately 43% of cargoes from Yanbu opting for southbound routes, compared to 81% in June.
Due to increased security risks, many tankers have completely avoided the Strait of Mandeb. However, Morris noted that some vessels have obtained transit permits from the Houthis, while an increasing number of tankers are choosing to disable their tracking devices while sailing.
On Thursday, the Saudi Ministry of Defense stated in a statement that 14 countries support Saudi Arabia’s proposal to establish a multinational “Maritime Defense Alliance” aimed at protecting international shipping routes and global trade.
These countries include Saudi Arabia, Kuwait, Bahrain, Qatar, Pakistan, Turkey, Egypt, Jordan, Yemen, Bangladesh, Nigeria, Sudan, Djibouti, and Somalia.
The risk of the Suez Canal has not yet been priced into oil prices.
Aly Blakeway, Head of Atlantic LNG at S&P Global Energy, believes that the Damietta attack does not mean the Suez Canal is under immediate threat.
"The market has not yet priced in the canal disruption," Blackwell said.
Despite the attack, international oil prices fell on Thursday, with traders primarily focusing on negotiations between Iran and Oman regarding the Strait of Hormuz.
The Suez Canal Authority has not yet responded to requests for comment.
Iran previously threatened to halt all energy exports in the Middle East, stating that no oil should leave the region if the U.S. blocks Iranian tankers.
The Houthi armed group has also announced a blockade on all Saudi shipping, which may include any vessels loading crude oil from Yanbu and attempting to reach Mediterranean markets.
The Houthi armed group has demonstrated that its drones and rockets are capable of reaching the canal area. In the past, the group has repeatedly launched such weapons at Israel, although greater distances also increase the likelihood of successful interception.
Martin Senior, Head of LNG Pricing at Argus, said that this risk alone could increase insurance costs.
“Given the increased risks to shipping and energy infrastructure in the region, insurers may also impose higher additional war risk premiums on the Suez Canal,” said Senior. He also noted that Iran has not issued any specific threats against the Suez Canal at this time.
A source from a maritime safety agency said shipping companies are reassessing vessel security arrangements in the Mediterranean coastal area of Egypt near the Suez Canal ports.
However, within Egypt, this incident is not necessarily seen as evidence of a direct threat to the Suez Canal.
“The canal is heavily guarded and under constant, tight protection,” said Wael Kaddour, a former board member of the Suez Canal Authority.
Even without this attack, the transportation routes for Middle Eastern oil to global markets have already become longer, more complex, and more costly.
“Yanbu cargoes accounted for about 15% of Asia’s crude oil and condensate imports in June, so the ongoing disruption has a significant impact on Asian refiners—routes via the Suez Canal instead of the Bab el-Mandeb Strait have more than doubled voyage times to Northeast Asia, causing delays of approximately one month,” Morris said.
There are also limitations on transporting large volumes of crude oil through the Suez Canal. Very Large Crude Carriers (VLCCs) have a deep draft when fully loaded and cannot pass through the Suez Canal directly; therefore, some crude oil must first be unloaded into the Suez-Mediterranean pipeline and then reloaded onto ships in the Mediterranean.
Despite existing constraints, the Suez Canal and the Suez-Mediterranean Pipeline still have capacity to increase crude oil transportation. Last week, crude oil shipments from the Sidi Kerir Port reached 1.4 million barrels per day, while historical weekly peaks have reached 2.1 million barrels per day. The Suez-Mediterranean Pipeline has a transmission capacity of 2.5 million barrels per day.
Maurice said that approximately 10 very large crude carriers may be reloaded with crude oil at the Sidi Kerir port over the coming weeks, primarily supplying Asian refiners.
This potential shipping capacity, combined with the uncertainty surrounding the navigational status of the Strait of Hormuz and the Bab el-Mandeb Strait, further highlights the strategic importance of the Suez Canal amid the current energy crisis.
Corey Ranslem, CEO of Dryad Global, said: "Any attack within the canal region would significantly increase war risk insurance premiums and substantially alter the security assessment for the area."
Matthew Wright, Chief Freight Analyst at Kpler, warned: "A disruption to the Suez Canal will have an almost immediate impact on prices. The inflationary pressures from longer voyages and higher freight costs will be passed on to consumers almost instantly."