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What Houthi Red Sea attacks mean for global trade

Bloomberg
Bloomberg • 5 min read
What Houthi Red Sea attacks mean for global trade
Why is the Red Sea so important to trade? These questions and more answered. Photo: Bloomberg
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A spate of missile strikes on ships plying the Red Sea has caused the biggest disruption to global trade since the pandemic. The attacks are the work of Yemen’s 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 been affected. Shipping companies have rerouted much of the Red Sea’s normal traffic around the southern tip of Africa, a lengthier and costlier journey. Western governments launched a naval operation to try to combat the Houthi attacks, but many shipowners are yet to be persuaded to return to their regular routes.

1. What are the Houthis doing?

While this isn’t the first time the Houthis have attacked ships passing through the Red Sea, they’ve never targeted tankers and cargo vessels this frequently. The rebels 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 it’s become a sight-seeing attraction at the Yemeni port of Hodeidah.

2. Why are the Houthis doing this? 

Houthi leaders say they’ve 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 Israel’s military response. The Houthis then moved on to targeting ships. They have said they won’t back down until Israel ends its offensive. Both the Houthis and Hamas receive funding, weapons and training from Iran.

3. What’s been the impact?

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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 are 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. 


Attacks in the Red Sea will cause shipping delays and drive up the price of goods, bringing a new inflation risk to the global economy@NewsAMorgan looks at what's going on ➡️ https://t.co/6Bcco7jZkL pic.twitter.com/8Z2xqxBC3Z

4. Why is the Red Sea so important to trade?

See also: ECB holds rates and signals cuts are still some way off

It’s the only route to the Suez Canal, linking some of the world’s 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 the Red Sea into part of a vital trade artery for crude flowing the other direction as well, as Moscow is now selling the lion’s share of its petroleum to Asia. 

5. Who assures security for Red Sea shipping and how?

Some ships have their own armed security guards, who can fire on approaching vessels if they look hostile. There’s also a maritime-protection coalition in place for the region. Called the Combined Maritime Forces, it includes the US, UK and Saudi Arabia. The US, which operates its Fifth Fleet out of Bahrain, announced a new force on Dec. 18 under the CMF, but many of the details remain unclear. Merchant ships in the region have been told by the CMF to expect to see more military vessels when sailing through the Red Sea. US and other Western warships have responded to multiple distress calls from commercial vessels in or near the Red Sea, helping them repel Houthi attacks. Those countries and the Saudis have also downed some Houthi missiles. 

6. Could this spark a supply chain crisis?

While there’s 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. And there’s no immediate prospect of an end to the Houthi attacks. 

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