Houthi Attacks Disrupt Diesel Shipments from India to Europe, Driving Trade Eastward

Shipments of diesel from India to Europe have hit their lowest point since 2022 this month, as persistent Houthi attacks on merchant shipping continue to roil international trade. The ongoing turmoil in the Red Sea, coupled with unplanned refinery maintenance in Asia, has significantly altered oil trade economics, redirecting more cargoes towards Asia rather than Europe.

Flows of diesel to the European Union and the UK have plummeted, largely due to soaring freight costs exacerbated by the unrest in the Red Sea. This, combined with unforeseen refinery shutdowns in Asia, has tilted the balance in favor of sending cargoes eastward. According to data from Vortexa Ltd., arrivals of fuel from India into Europe have averaged a mere 18,000 barrels per day in the first half of February, marking a staggering drop of over 90% compared to January’s average.

James Noel-Beswick, an analyst at Sparta Commodities, attributed the sharp decline to the higher shipping costs incurred last month when sending cargoes westward. “The economics to export east — Singapore region — were a lot better than those west,” noted Noel-Beswick. Tankers bound for Europe or the Atlantic Basin are faced with the dilemma of either navigating around South Africa’s Cape of Good Hope, thereby increasing journey lengths and costs, or braving the Suez Canal with its attendant risks and exorbitant war risk insurance premiums.

In the first two weeks of February, there were no imports of diesel-type fuel into the EU, and only one shipment made its way to the UK, as per the data. However, recent developments indicate a potential uptick in activity, with the Marlin Sicily and Marlin La Plata loaded with barrels in India and bound for Rotterdam. Conversely, diesel-type fuel shipments from India to Asian destinations, including Saudi Arabia and Bangladesh, have witnessed a surge in activity during the same period.

Looking ahead, Noel-Beswick anticipates a rebound in exports of diesel from India to the European region in the coming weeks, buoyed by improved arbitrage economics. Despite the current challenges posed by geopolitical instability and logistical hurdles, the resilience of global trade networks continues to adapt to prevailing conditions, albeit with notable shifts in trade patterns and routes.

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