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What If Houthis Unravel Global Shipping in Red Sea?



The Red Sea, a vital artery for global shipping, has become a hotspot of conflict due to relentless attacks by the Houthi rebel group based in Yemen. Since mid-November 2023, the Houthis have targeted dozens of commercial ships, disrupting the flow of international trade. The consequences of these attacks are far-reaching, threatening to disrupt supply chains, increase consumer prices, and impact the global economy.

 

While the Houthi rebels claim their attacks are directed at ships with Israeli interests, experts argue that their strikes have been indiscriminate. Major shipping companies are rerouting away from the Red Sea and the Suez Canal, diverting approximately $200 billion in trade. The attacks not only jeopardize vessels but also raise concerns about the opaque nature of shipping, where ownership, operation, and flag registry can vary.

 

The Red Sea is a critical route for global shipping, with one-third of all container traffic passing through it. Disruptions in this key maritime corridor have the potential to send ripple effects of higher costs throughout the world economy. Energy markets are particularly vulnerable, with 12 percent of seaborne oil and 8 percent of LNG transiting the Suez Canal. Avoiding the Red Sea forces ships to take longer routes, increasing fuel costs and impacting trade.

 

Shipping companies are already passing down the increased expenses to consumers. France’s CMA CGM, the world’s second-largest shipper, recently announced a doubling of rates for shipping from Asia to Europe. These developments highlight the interconnected and fragile nature of global shipping.

 

As of early January 2024, major price increases for consumers, especially in energy markets, have not materialized. However, Europe is expected to feel economic stress sooner than the United States, given its reliance on the Red Sea route to the Suez Canal. The situation emphasizes the vulnerability of global supply chains and the need for effective solutions.

 

The international community, led by the UK and the US, faces difficult choices in balancing defensive and offensive strategies to ensure freedom of navigation and protect vital maritime routes. In light of the recent strikes against Houthi targets by the UK and US, the Red Sea remains a focal point for geopolitical concerns and economic challenges, with the potential for more turbulent waters ahead.

 

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