The situation in the Red Sea and the Middle East is escalating, with increasing concern that shipping diversions around the Cape of Good Hope will become more frequent and lengthy than initially anticipated. This is likely to benefit shipping stocks in the long run, due to the extended voyage distances.
Recent incidents include a ballistic missile attack on the JP Morgan-owned product tanker Marlin Luanda by the Houthis, resulting in a cargo tank fire. A drone attack by an Iranian-backed militia also claimed the lives of three U.S. service members and injured over 40 others in Jordan, prompting the Biden administration to promise a response.
As attacks on vessels in the region continue, more shipping companies are opting to avoid the area, leading to a rise in Red Sea diversions. Data from Clarksons shows a significant decline in crude tanker transits, product tanker transits, liquefied natural gas carrier transits, and liquefied petroleum gas carrier transits in the region.
Jefferies shipping analyst Omar Nokta predicts that Red Sea diversions will persist for a prolonged period, tightening capacity. He upgraded his outlook for Israeli container liner operator Zim, projecting adjusted net income of $751 million this year and losses of $337 million next year, attributing the turnaround to the Houthi attacks.
Tanker equities are also expected to benefit from the disruptions caused by the recent attacks, with companies like Frontline, International Seaways, and Scorpio Tankers likely to experience upward pressure on spot rates. Financial analysts emphasize the potential for further vessel diversions from the area, highlighting the positive impact on the mid-sized crude and product tanker segments.
