According to global trade intelligence company Kpler, a growing number of LNG, crude oil, and diesel tankers are opting for the longer route around Africa's Cape of Good Hope instead of traversing the Red Sea and Suez Canal. The decision to divert is primarily driven by the recent Houthi rebel attacks in the region, adding significant delays and increasing tanker rates. This shift in shipping routes is leading to changes in commodity purchases by Europe, benefiting Atlantic Basin crude suppliers such as the United States and Brazil.

The diversions, which can extend voyages by 20 to 45 days, are impacting energy prices in Europe. The longer travel time is particularly affecting Middle Eastern barrels that have replaced Russian flows to Europe, raising concerns about supply shortages. As a result, European buyers are turning to Atlantic Basin countries as alternative fuel suppliers, with U.S. and Brazilian diesel experiencing an uptick in demand.

Energy prices in Europe are expected to rise due to the increased diversion of petroleum and crude tankers away from the Red Sea and Suez Canal. The Houthi rebel attacks have heightened risks in the region, particularly for European tanker supplies. European countries' perceived involvement in the Israel-Hamas conflict has prompted owners of the oil to choose the longer route around Africa instead of risking the Red Sea passage.

This redirection is causing significant delays in the delivery of products, such as crude, diesel, and LNG. The duration of these delays varies depending on the commodity being carried, with LNG vessels traveling faster than crude tankers. Previously, a voyage from Jamnagar, India to Rotterdam, Netherlands would have taken 24 days, but sailing around the Cape of Good Hope now extends the journey to 42 days. Similarly, a trip from Basrah, Iraq to Milazzo, Sicily, which would have taken 17 days, now requires 42 days.

Additionally, the longer transit time impacts the availability of tankers, as they require more time for the return journey to be loaded with new products. This extended delivery cycle of up to 90 days per tanker is a significant factor that could be underestimated by the market.

With the diversions increasing freight rates, tankers carrying clean products such as diesel and gasoline have experienced surges in rates. This situation benefits tanker owners and raises utilization rates, ultimately leading to higher freight rates. Andy Lipow, president of Lipow Oil Associates, highlights the irony of tensions in the region benefiting tanker owners with longer voyages.

Analysts anticipate a prolonged and challenging event due to the diversions, but it presents a significant boost to the U.S. and Brazilian energy industries. European countries are redirecting their oil purchasing patterns to companies in the Atlantic Basin to avoid logistics constraints. The United States is already the largest diesel supplier to the European market, with diesel rates reaching their highest levels in seven years.

The implications of these diversions are not expected to result in shortages, as Europe has strategic petroleum reserves that can sustain its supplies for 90 days. However, the new reality for Europe includes receiving oil with significantly higher freight costs.

Kpler has been tracking the trend of tankers diverting away from the Red Sea and Suez Canal. Several tankers, including ENI's Faithful Warrior, have already embarked on the longer route since early January. Energy companies and tanker operators such as Torm, Hafnia, Stena Bulk, BP, Frontline, Equinor, Euronav, and Shell have joined this trend, choosing to avoid the volatile region following recent warnings.

Kevin Book, managing director of Clearview Energy Partners, highlights the looming upside risk associated with longer trips for Middle Eastern barrels. This risk could lead to supply latency, which can have a bullish effect. Additionally, if shipping from Iraq through the Suez Canal to Europe appears too risky, cargoes from other regional producers may soon follow suit.

The ongoing diversions due to security concerns are reshaping the energy landscape, creating both challenges and opportunities for global markets.