More than a thousand miles from Gaza, a maritime crisis is unfolding that could turn the war between Israel and Hamas into a global affair with implications for the world economy. Since December 15, four of the five largest container shipping companies in the world, CMA CGM, Hapag-Lloyd, Maersk, and MSC, have halted or at least temporarily suspended their services in the Red Sea, the route through which traffic from the Suez Canal must pass, as the Houthis, Yemeni rebels armed with sophisticated weapons, escalate their attacks on global maritime flows, reported The Economist.
As one of the world’s main trade arteries suddenly closes, America and its allies are ramping up naval activity in the Middle East, and may even attack the Houthis to restore free passage.
Bab al-Mandab is a narrow strait between Africa and the Arabian Peninsula through which an estimated 12 percent of global trade by volume and perhaps 30 percent of global container traffic normally flows. It has become a no-go zone as the Houthis attack ships, reportedly in support of Palestinians in Gaza. Strikes have been ongoing for weeks, but have now sharply escalated.
On December 15, the Houthis threatened to attack one ship, attacked another with a drone, and fired two ballistic missiles at the MV Palatium III, one of which hit the vessel. The attack on Palatium III was the first use of an anti-ship ballistic missile. All ships were flying the Liberian flag. Meanwhile, American and British ships have jointly destroyed an additional 15 drones according to published information in global media.
Faced with a significant risk of incapacitating ships and the deaths of their crews, the global maritime industry is shifting into emergency mode. Maersk and Hapag-Lloyd temporarily paused their services a few days ago. On December 16, CMA CGM followed suit, as did MSC, the owner of Palatium III, which stated that its ships would not use the Suez Canal in either direction ‘until passage through the Red Sea is safe’, and that some vessels would be redirected around the Cape of Good Hope. These four companies together account for 53 percent of global container trade. Smaller container operators, as well as bulk carriers and oil tankers, may now follow their example.
– Currently, we have one ship sailing towards the Mediterranean. It is now in the Red Sea and heading towards Suez. It has not stopped. Insurance immediately charged an additional premium for ‘war risk’ and we have to pay this in a significant amount. On the other hand, many shipowners have decided to avoid the Gulf and sail around the Horn of Africa. Besides being a longer route, it incurs costs that will ultimately be borne by the goods – said Marin Škufca, CEO of Liburnia Maritime Agency.
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One is the economy, and the other is war
The crisis has two major implications: one for the world economy and the other regarding the risks of military escalation in the Middle East as Western countries try to restore order. Let’s start with the economy. Revenues from the Suez Canal are a major source of income for Egypt, which is already in the midst of a financial crisis. (Israel will be less affected as only about five percent of its trade passes through Eilat, its port on the Red Sea.) For the world economy, an extended closure of the Suez route would increase trade costs as shipping traffic is rerouted around Africa, taking more time, and insurance premiums rise. Of course, that’s not all.
– Some shipowners already introduced a PSS (premium on standard prices) of $1,000 to $2,000 per large 40-foot container yesterday, but forecasts from logistics sector analysts suggest that spot prices could quickly rise again above five thousand dollars (currently around 1,000-1,500). Even if the passage is reopened, it is possible that shipowners will maintain high prices due to a significant increase in the risk of renewed attacks on ships – said Petar Šimić, CEO of Primacošped and president of the HUP Association of Small and Medium Enterprises.
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Short-term disruptions in the supply chain could also result from extensive rerouting of trade: in 2021, the Ever Given, a Taiwanese ship, ran aground and blocked the canal for six days, intensifying the global supply chain crisis. If the security crisis in the Red Sea is deemed to threaten navigation in the nearby Arabian Sea, through which perhaps one-third of global maritime oil supply passes, the economic costs would be dramatically higher.
– Estimates suggest that this crisis could escalate to 100 times greater than the one we all remember when the mega container ship Ever Given was stuck in the Suez Canal for several days. I also expect a significant increase in oil product prices as most oil is now delivered to Europe by tankers, given that Russian oil that was coming through pipelines has been sanctioned. Therefore, I expect an increase in road transport as well, but that will be much less dramatic.
We have a large number of containers on ships that are on their way from Asia to the Adriatic, as well as from the Adriatic to Asia. This will directly affect us and our clients, goods will be delayed, and shipowners will activate crisis surcharges and increase freight rates. This means that the calculations our clients made, unfortunately, go down the drain – adds Šimić.
All these risks we have mentioned are the reason why the US and its allies will be inclined to act, but the threat of the Houthis is daunting and complex. The militant group’s motto includes the call ‘Death to Israel. Curse upon the Jews’, and claims to target ‘all ships heading to Israeli ports’ until food and medicine are delivered to Gaza. This does not hold water, given that most of the attacked ships were not headed to Israel nor were they Israeli-owned. Countries from all over the world have been affected: one of the vessels attacked by the Houthis was flying the Hong Kong flag.
The evident incoherence of the Houthis’ stated goals should not be confused with ineffectiveness. Iran has been training and arming the group for years in its successful rebellion within Yemen, and in the war against Saudi Arabia and the United Arab Emirates (UAE), regional rivals of the Islamic Republic. The sophistication of some weapons is high.
– The Houthis currently have a huge arsenal of anti-ship missiles – says Fabian Hinz from the International Institute for Strategic Studies (IISS), a think tank in London, including those with ranges of up to 800 km.
Diplomacy is key
Western officials are unclear whether Iran is managing individual attacks. The Israeli intelligence service is not yet convinced that the latest strikes were authorized by the 6000 Corps, a unit of the Iranian Quds expeditionary forces working with the Houthis in a joint command center. However, the group is believed to be receiving intelligence on ships from Iranian surveillance vessels in the Red Sea. And the broad campaign against shipping fits into Iran’s strategy of calibrated pressure, avoiding an all-out attack on Israel while relying on its regional proxies to violently attack it from all sides. Still, Iran does not have complete control over the Houthis’ attacks, and the attacks are spreading to more countries.
Diplomacy could help de-escalate the crisis. In 2015, Saudi Arabia and the UAE intervened in the civil war in Yemen in favor of the internationally recognized government. In March 2022, the Saudis agreed to a ceasefire, leaving the Houthis in control of the capital Sanaa and the strategic western coast. They may soon announce a roadmap for a permanent ceasefire and end the war. Commitments to cease maritime attacks could become part of any negotiations, writes The Economist.
Despite this, a larger military response to the Houthi threat is likely. A multinational operational group led by the US Navy is already operating off the Yemeni coast to try to deter the Houthis from violently boarding ships (an attack was thwarted in November) and firing missiles. This includes Egypt and Saudi Arabia. In recent weeks, American, British, and French warships have intercepted Houthi drones and missiles, and America has also asked Australia to send a warship.
Direct strike on the Houthis
But this defensive armada has struggled to keep the crisis under control. The Houthis have shown that several drones and missiles can always get through. One potential next step involves armed escorts for commercial ships, which America used in the 1980s during the so-called tanker war between Iran and Iraq, but they require a very large number of warships, according to maritime sources involved in the discussion.
The main alternative is a direct strike on the Houthis and their arsenal. America and Israel have developed plans to attack Houthi warehouses and launchers. America can hardly wait to expand its involvement in the Middle East: the Biden administration has been focused on expanding the operational group in the Red Sea and exerting diplomatic and economic pressure on Iran.
Israel does not want a new conflict: it is already under pressure from America to end this phase of the war in Gaza and is concerned about Hezbollah, the Lebanese militant group, which fires missiles at Israel almost daily. However, if Iran and its Houthi proxies continue their attacks that keep one of the world’s main trade routes closed, escalation could be inevitable.
