- Red Sea traffic revival could shave two weeks off voyages, cut freight costs, and bring an estimated 24 million barrels of Middle Eastern fuel back to Europe’s shores.
- European refiners face margin pressure, with light-sweet hydrocracking margins forecast to fall from $0.53/b in April to below zero by year-end.
- Shipowners’ cautious return due to safety and insurance concerns means any shift will be gradual.
A full rerouting of oil product tankers back through the Red Sea, shunning the longer Africa‑Cape route, would reduce voyage times by about two weeks and lower bunker consumption. Platts data show LR2 tanker rates from the Persian Gulf to Northwest Europe dropped from an average $88.73/mt in May 2024 to $42.78/mt on May 15 2025. Lower freight expenses will make Middle Eastern refined products more competitive in Europe, likely spurring importers to boost purchases from traditional Gulf suppliers.
Renewed Traffic Could Deliver 24 Million Barrels
S&P Global Commodities at Sea estimates that Cape transits of oil products surged from roughly 870,000 b/d before October 2023 to 2.6 million b/d in March 2025. If that extra traffic reverses through the Suez route, some 24 million barrels—mainly middle distillates—could hit European markets, adding significant downward pressure on refining margins.
Refining Margins Under Strain
After record profits during the early Russia‑Ukraine crisis, European refiners saw first‑quarter margins plunge by up to 60% year‑on‑year. Diesel stocks in the Amsterdam‑Rotterdam‑Antwerp hub remain 5% below their five‑year average, propping up prices. Yet closures at Grangemouth (Scotland) and Wesseling (Germany) exacerbated supply tightness. Even so, Commodity Insights forecasts nominal light‑sweet hydrocracking margins falling from $0.53/b in April to $0.18/b by August—and turning negative for the rest of 2025.
Cautious Return of Shipowners
Despite the U.S.–Houthi truce, many tanker operators remain wary of Red Sea transits. Hafnia, a top tanker firm, says it will only resume routes once “100% confident” of safe passage. Houthi attacks—more than 130 incidents since October 2023—plus elevated insurance costs, have kept traffic through Suez at about 97 tankers weekly, compared with ~160 pre‑war, while Cape transits nearly doubled to 109. The International Chamber of Shipping warns that confidence and rerouting decisions will take time.
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Source: S&P Global
