By Paul Wallace and Alex Longley â Bloomberg
A wave of missile and drone strikes on ships plying the Red Sea has caused the biggest disruption to global trade since the pandemic. The attacks are the work of Yemenâs Iran-backed Houthi militants. They say they are targeting vessels with links to Israel to protest against its military campaign in the Gaza Strip, though ships with no direct connection to Israel have also been affected. A US-led force has redoubled naval patrols and thwarted some of the attacks. But by early January, with little sign that the Houthis were backing off, shipping companies were rerouting much of the Red Seaâs normal container traffic around the southern tip of Africa, a lengthier and costlier journey.
- What are the Houthis doing?
While this isnât the first time the Houthis have attacked ships passing through the Red Sea, theyâve never targeted tankers and cargo vessels this frequently. The militants have fired missiles and tried to board and take control of some of the ships, largely without success. Some have been damaged but none have yet been sunk and there were no reports of major injuries for now. Many of the attacks are launched from near the Bab al-Mandab strait that ships pass through to enter the Red Sea from the Indian Ocean. The Houthis managed to capture an Israeli-owned car carrier called the Galaxy Leader in November, and itâs become a sight-seeing attraction at the Yemeni port of Hodeidah.
Shipping in the Red Sea Is Grinding to a Halt
Amid an increase in attacks by Iran-backed Houthi militants, oil tankers are idling and container vessels are rerouting around Africa in order to avoid waters off the coast of Yemen â an unavoidable waypoint for ships using the Suez Canal to cut between Europe and Asia. Bloombergâs Alaric Nightingale reports.
- Why are the Houthis doing this?
Houthi leaders say theyâve mounted the attacks to support the Palestinians. They began firing drones and missiles toward Israel soon after the Islamist Palestinian group Hamas, considered a terrorist organization by the US and European Union, attacked Israel from Gaza in early October, precipitating Israelâs military response. The Houthis then moved on to targeting ships. They have said they wonât back down until Israel ends its offensive. Both the Houthis and Hamas receive funding, weapons and training from Iran.
- Whatâs been the impact?
Half of the container-ship fleet that regularly transits the Red Sea and Suez Canal was avoiding the route because of the threat of attacks as of late December, according to a tally compiled by Flexport Inc. The diverted journeys around Africa can take as much as 25% longer than using the Suez Canal shortcut between Asia and Europe, according to Flexport. Those trips are more costly and may lead to higher prices for consumers on everything from sneakers to food to oil if the longer journeys persist. There were concerns that energy flows could be disrupted at a time when Europe increasingly depends on tanker-borne gas to replace once-crucial Russian pipeline gas, though so far the impact has been minimal.
- Whatâs being done about it?
Before the latest spate of attacks, the US and its allies patrolled Red Sea waters to tackle piracy and smuggling in a coalition called the Combined Maritime Forces. Some ships also had their own armed security guards who could fire on approaching vessels if they looked hostile. When Houthis stepped up their campaign in December, the allies set up a new âzone defenseâ arrangement whereby five vessels sought to protect all ships in the waterway, as opposed to providing individual escorts to a few. By early January, the coalition had shot down 19 drones and missiles amid 25 attacks on merchant vessels, according to Vice Admiral Brad Cooper, commander of US Navy forces in the Middle East. But he acknowledged that the Houthi attacks continued âunabated.â A UK official warned that action against the Houthis in Yemen itself was likely if the group didnât back down.
- Why is the Red Sea so important to trade?
Itâs the only route to the Suez Canal, linking some of the worldâs biggest consumers of tradable goods in Europe with big suppliers in Asia. About 12% of global trade passes through the canal, including as much as 30% of container traffic, and more than $1 trillion worth of goods a year. Massive volumes of crude, diesel and other petroleum products from the Middle East and India pass through the Red Sea on their way to Europe. Western sanctions on Russia turned it into part of a vital trade artery for crude flowing the other direction as well, as Moscow is now selling the lionâs share of its petroleum to Asia.
Oil Flows through the Suez Canal/Red Sea
Oil shipments passing through the Suez Canal and Red Sea have more than doubled since Russia invaded Ukraine
Sources: Tanker tracking data compiled by Bloomberg and Kpler
Note: The pre-invasion period is Jan 1 to Feb. 20, 2022. The post invasion period is June 1 to Nov. 30, 2023.
- Could this spark a supply chain crisis?
While thereâs some slack in global supply lines to smooth out the impact of disruption to Red Sea traffic, the Covid-19 pandemic demonstrated how fragile transportation networks are when major links break down for longer. The extra costs and delays in deliveries of vital goods could inflate global prices and crimp demand just as inflation looked set to cool. When the Ever Given container ship got stuck in the Suez Canal in 2021, it halted traffic for less than a week but it took several months to get international supply chains running smoothly again. With little sign of an end to the Houthi attacks, shipping giant A.P. Moller-Maersk A/S said on Jan. 5 that it would continue diverting ships away from the Red Sea âfor the foreseeable future.â
â With assistance from Megan Durisin Albery, Anna Shiryaevskaya, Alaric Nightingale, and Brendan Murray
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