Rules of engagement breaches in region hurt global economy

From Beirut to Bab-el-Mandeb

What is happening today in the Red Sea and Lebanon – where violence is no longer restricted to the south after the assassination of Saleh al-Arouri on the outskirts of Beirut – contradicts the rules of engagement both militarily and in terms of economics.

The exchange of fire between Hezbollah and Israel in parallel with the Gaza war, alongside Houthi attacks on merchant ships in the Bab-el-Mandeb strait, touches the interests of the broader Middle East, other global powers and entire continents.

The economic data show that this goes beyond disruption to supply chains and global trade. It has a broader reach via a variety of forces, including global inflation, price disruption, and the general destruction of economic value in normally functioning markets, reducing the potential for the growth that underpins the living standard of millions.

Read more: Can the global economy withstand Houthi attacks on maritime trade?

In Lebanon, people fully understand the economic significance of terms, including rules of engagement. There are others with similar resonance: "inseparability of the two tracks," "rules of the game," and the "axis of resistance''.

They are well aware of the extent of the impact these concepts can have on their lives, from the availability of daily bread to the hours during which electricity is supplied and even the availability of proper medicine.

The Lebanese have learned and felt the meaning of another chilling term: the simultaneous and historic "triple collapse" of the state treasury, the lira, and the banks. It has left everyone floundering for more than four years amid chaos.

Amid this confusion and near-total lack of rules, the World Bank announced in its Lebanon Economic Monitor report that the first effects of the Gaza war constitute an additional significant shock to the unstable Lebanese economic growth model.

Read more: Lebanon's already struggling economy cannot survive a war with Israel

Before the war, Lebanon's 2023 economic growth was projected to rise for the first time since 2018 by a modest 0.2%. Since the war, the size of the economy, as tracked by gross domestic product, is now expected to fall overall for last year by between 0.6% and 0.9%, not least due to the decline in tourism to the region.

Houthi piracy

The Bab-el-Mandeb Strait is about 30 kilometres wide, linking the Red Sea and the Mediterranean via the strategic Suez Canal, through which 12% to 15% of world shipping passes.

It typically carries 30% of all the world's container shipping, worth about $1tn a year. Around 80 million tons of grain pass through the Red Sea annually, while the Suez Canal handles 10% of global oil and gas shipments.

Given such statistics, it is not surprising that maritime shipping costs have surged, with 18 global shipping companies suspending plans to resume crossing the Red Sea.

According to the most recent numbers from the global booking and shipping platform Freightos, shipping rates from Asia to Northern Europe have doubled to exceed $4,000 per 12-meter container, and rates from Asia to the Mediterranean have risen sharply to $5,175.

Impact limited but problems mount

The impact on the Suez Canal is currently limited, but the unfolding problems in the Red Sea and the broader Middle East imply there could be worse ahead. There are immediate implications for Egypt's economy and implications that stretch far beyond the country and the region to take on global significance.

That could go as far as to upend expectations that 2024 would provide relief for the worst of global inflation that led to the series of interest rate hikes worldwide in 2023 to curb it.

Violating the implicit rules of economic engagement here is in no one's interest. But the piracy and missile attacks, carried out by the Houthis in solidarity with Gaza, are having an impact, as shown by some striking numbers from this vital sea lane.

Specifically, 17% of global container trade will be rerouted. The duration of maritime journeys from Asia to Europe when passing around the Cape of Good Hope instead of via Suez and the Red Sea will increase the average journey time by 14 days, adding between 2,500 nautical miles and 3,500 nautical miles to voyages. There is currently no strategic alternative to the Bab-el-Mandeb and Suez Canal for the most efficient maritime route.

The current situation brings talk of the Northern Sea Route through the Arctic back into the discussion as a viable alternative. But it faces challenges as an alternative, with political and strategic security problems of its own — especially following the Russian-Ukrainian war and the deterioration of relations with Europe and the United States.

With the world now in the grip of a militia mindset, there will be moves to control specific geographic and strategic areas on land and sea. This attitude makes rules of engagement necessary, including ones that are, in effect, economic.

They also appear in the irregular economy, covering matters like financial intimidation, smuggling, the availability of cash and the drug trade, including the highly addictive Captagon, which is produced in Syria and abused across the Middle East.

But the militia mindset fails to realise that violating the rules of engagement will bring consequences, and ones running beyond straightforward political calculations, like the ones over the arrival of international fleets to police violations such as those in the shipping lanes of the Red Sea.

This way of thinking blights the lives of millions and wipes out future opportunities for just as many.

The Bab-el-Mandeb Strait is a vital passageway for the food energy on which so many lives depend. Disregarding established norms over keeping these essential supply lines open will worsen wars and lead to more economic devastation.

There is a reason established rules have developed alongside economic civilisation to allow the flow of life's essentials across the globe. The consequences of violating them could prove as unpredictable as they are serious.