Can the global economy withstand Houthi attacks on maritime trade?

Al Majalla gives an overview of the current security situation in the Red Sea

The redirection of major merchant navigation routes around the coast of Africa adds to the cost and time of supply chains just when the world economy can least afford it. Al Majalla explains.
Michelle Thompson
The redirection of major merchant navigation routes around the coast of Africa adds to the cost and time of supply chains just when the world economy can least afford it. Al Majalla explains.

Can the global economy withstand Houthi attacks on maritime trade?

A growing number of international shipping companies are changing their routes to avoid the Bab-el-Mandeb Strait in the Red Sea due to attacks by the Iran-backed Houthi group based in Yemen.

The Houthis, who say they are acting in response to Israel’s war in Gaza, have used drones and missiles to attack merchant ships.

In the case of MV Galaxy Leader, which an Israeli tycoon partly owns, the group filmed one of its armed teams landing on the vessel via helicopter before the masked operatives took control of the ship.

They are attacking fleets crossing through the Gulf of Aden Strait between the Indian Ocean and the Suez Canal, the quickest sea route between Asia and Europe.

The Bab-el-Mandeb Strait (which translates as Gate of Grief) is a narrow channel measuring about 26km (or 16 miles) that separates Eritrea and Djibouti on the African side from Yemen on the Arabian Peninsula.

About 17,000 ships pass through it every year. It is the only direct route to the Suez Canal to or from the Indian Ocean.

From the sea to the ocean

The route currently being targeted by the Houthis is one of world trade’s most vital arteries, carrying up to 40% of global commodities, 12% of seaborne oil supplies, and 8% of the world’s liquefied natural gas.

According to the International Chamber of Shipping, 30% of global commodity supplies are expected to be affected by the current security situation in the Middle East.

In one of the biggest announcements, the giant Danish company Maersk, which controls 12% of the world’s container and shipping activities, said it was stopping all navigation through the Bab el Mandeb Strait for ships using the Suez Canal.

It said it would divert its maritime route towards the southern Atlantic coast, citing the “severe operational disruption” from Houthi attacks that posed a threat to the safety of its ships and personnel.

According to the International Chamber of Shipping, 30% of global commodity supplies are expected to be affected by the current security situation.

French, German, British, and Norwegian companies, including MSC, Hapag-Lloyd, CMA CGM, Aquinor, and BP, are all doing the same.

Their ships have been redirected to the Cape of Good Hope before heading up the west coast of Africa to the Strait of Gibraltar, between Morocco and Spain.

Longer journeys and rising costs

Although deemed more secure, analysts at consulting firm Radulf Saadi say the route change will add 4-11 days to the sailing time, increasing shipping and insurance costs while potentially delaying delivery schedules.

Shipping firms are asking their clients to understand the exceptional circumstances. Maersk, the French company CMA CGM, and Germany's Hapag-Lloyd have all said they will impose surcharges to cover the longer voyage.

Source: Wikipedia
A Maersk container being lifted by a crane

The analysts described it as "a good decision" that "holds tremendous importance for the security of global trade" despite the 40% increase in distance and the consequent rise in fuel costs and crew wages.

A ship's journey from Singapore to Rotterdam in the North Sea will now increase from 6 to 12 days, whereas those bound for southern Europe through the Mediterranean will navigate almost the entire coast of Africa.

The firms said that the change would add around ten days to a journey that would normally take about 27 days from China to northern Europe. Maersk said a standard 20ft container on that journey would carry around $700 in extra charges from January.

Ratings agency Standard & Poor's said the changes would add an average of around $100 per container, while the rental cost of merchant ships increased by more than 25% in London over the course of the week.

The number of merchant ships treading the longer path began around 19 November and includes the vessels of Israeli company ZIM.

An important and historic thoroughfare

The Atlantic route was used for centuries before the idea of a Suez Canal took hold. After conquering Egypt in 1798, French military commander Napoleon Bonaparte ordered his engineers to build it.

The plan ended, however, when his surveyors incorrectly said the Red Sea was 30ft higher than the Mediterranean, so would cause catastrophic flooding in the Nile Delta.

Through a combination of French engineering determination, Egyptian labour, and British money, the canal was finally finished, and with the invention of steam engines, it became the optimal maritime route for global trade and navigation.

The change will add 10 days to a 27-day journey from China to northern Europe, with a standard 20ft container carrying $700 in extra charges

It has also been a political football. It was at the centre of a brief war involving Egypt, Britain, France, and Israel in 1956, while its nationalisation and the subsequent closure of the Bab-el-Mandeb Strait to trade with Israel prompted the June 1967 war.

The Suez Canal remains an important source of foreign currency for Egypt, accounting for roughly 2% of the country's gross domestic product (GDP), and is still an indispensable global trade path.

International anti-piracy alliance

Iran and the Houthis may see the redirection of shipping routes as a victory against world powers, but this would be misguided thinking that lacked any wider support.

It is also not without response. The United States' Secretary of Defence Lloyd Austin has announced the formation of a new military alliance to counter the threats posed by these groups against international trade in the Red Sea.

Contributing countries include the UK, France, Bahrain, Canada, Italy, the Netherlands, Norway, and Spain.

According to the French newspaper Le Figaro, French diplomats have urged a broader alliance, to include some of the more influential Arab states, upon which trade route changes would have the biggest impact.

Other European countries have expressed caution, however, believing that an escalation would do nothing for the cause of regional security.

The US has announced a new military alliance to counter the threats posed to trade in the Red Sea, with the UK, France, Bahrain, Canada, Italy, the Netherlands, Norway, and Spain. 

They argue that some states along the Red Sea and the Horn of Africa may not agree with the US's military approach, fearing an expansion of conflict and a direct confrontation with Iran, who they see as the Houthis' principal tactician.

Many countries have accused Tehran of supporting the engagement of criminal groups in piracy by supplying them with drones and missiles to do so.

It is believed to be the first time that merchant ships have been targeted in the Red Sea by Iranian missiles.

China and India most affected

According to the International Monetary Fund, the situations in Gaza and the Red Sea coincide with a less-than-favourable world economic outlook, with a slowdown in global growth to a rate of less than 3% in analysts' best-case scenario.

States such as Germany, France, Italy, and Spain are concerned about a new wave of inflation if the disruption of trade and supplies persists.

The European economy grew by a sluggish 0.7% this year and aims to reach 1% in 2024 to avoid the economic contraction seen in Germany during the last six months.

Germany, which was one of the countries most affected by the suspension of Russian hydrocarbons after it invaded Ukraine, can afford neither a new energy price spike nor an industrial supply-chain crisis.

Yet it is China, along with India, that many think will be most affected by the disruption of trade through the Red Sea.

On Friday, Chinese automaker Geely told Reuters that its electric vehicle sales would likely be hurt by a delay in deliveries to Europe. Most of the shipping firms it uses have plans to navigate around Africa.

China's automakers have sought to increase their exports to Europe in recent months, owing to overcapacity and weak demand at home, so Geely is not the only Chinese vehicle manufacturer to take a hit.

Many think that China and India will be most affected by the disruption, with China having sought to increase exports to Europe.

US industries are also concerned about a potential supply crisis caused by an open military escalation in the region, which means that Washington and Beijing will find a swift and mutually beneficial resolution.

French newspapers have already reported that secret negotiations are underway between the pair to keep the Red Sea route open and to put pressure on Iran to end the Houthi attacks and avoid further losses to the global economy.

Arab-Russian dialogue in Marrakesh

The Israeli war on Gaza and the Houthi obstruction of global trade in the Red Sea were discussed at the 6th session of the Arab-Russian Cooperation Forum in Marrakech on Wednesday.

The recently captured Galaxy Leader (L) ship anchored off Saleef Beach, Yemen, with a support ship stationed nearby.

Russian Foreign Minister Sergey Lavrov and foreign ministers from Arab countries and the Arab League attended the meeting. They discussed political and economic issues of interest to Russia and Arab states.

Nasser Bourita, the forum president, said: "We aspire to elevate this forum to the level of an Arab-Russian strategic dialogue that serves the interests of both parties… and contributes to the security and stability of our Arab region."

The overwhelming desire of Arab states is to avoid further conflict in the region and to avoid the region being influenced by the agendas of international actors whose interests may not align with the forum's delegates and could even be hostile to Arab interests.

Seeking security and stability

In European countries, there is a growing belief that an end to the war in Gaza is necessary before trade threats are removed. Public opinion is shifting decisively towards a permanent ceasefire to allow much-needed aid in.

This aligns with the desire for security and stability in the entire Middle East by countries in the region and their preference for dialogue over war by all parties.

Like the oil tankers currently being re-routed, several Western governments are also having to chart a new course, after having initially supported Israel's right to wage war on Gaza after the 7 October attacks by Hamas.

Many will note the timing of the U-turn as concerns mount over potential new inflationary pressures and commodity or energy shortages due to the Houthis' disruption of global trade routes through the Red Sea.

Twenty years ago, the late French President Jacques Chirac stated that "the security and stability of the Middle East ensure the security and prosperity of Europe". This week, many were left to ponder how history repeats itself.

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