A series of audacious drone and missile attacks on commercial ships transiting the southern Red Sea has sent shockwaves through the global economy and supply chains. The attacks, reportedly conducted by Houthi rebels based in Yemen, have raised insurance rates for vessels in the region tenfold and rerouted many ships around the southern tip of Africa. Experts warn the disruption could stall the post-pandemic economic recovery and prolong inflation.
Attacks catch world by surprise
The attacks began without warning on January 10, as Houthi drones and missiles targeted several oil tankers and cargo vessels off the Yemeni coast. At least five ships are confirmed to have sustained damage, with no loss of life reported. While the narrow Bab al-Mandab strait linking the Red Sea and Gulf of Aden has seen sporadic attacks over Yemen’s seven-year civil war, this incident represents a serious escalation.
“The scale and intensity of these latest strikes are unprecedented,” said maritime intelligence analyst John Smith. “The Houthis appear to have significantly expanded both their arsenal and their willingness to impede commercial shipping.”
In response, joint U.S. and British airstrikes targeted Houthi coastal defense systems on January 14. President Joe Biden promised to “preserve freedom of navigation through this critical global transit point”. However, the Houthis have vowed to continue targeting vessels, creating an extremely dangerous situation for all ships traversing the southern Red Sea.
Economic impacts mounting
With over 10% of global trade passing through the critical Bab al-Mandab waterway annually, the attacks have already begun affecting the world economy. Shipping companies are being forced to take longer alternate routes, adding weeks to journey times. Meanwhile, insurance rates for vessels operating in the Red Sea have risen more than 600% as underwriters price in war risk premiums.
“The overall cost of transporting goods by sea is skyrocketing,” said Judith Dwarkin, chief economist at international shipping company ZIM Integrated. “We are passing these costs onto our customers – costs which will eventually be felt by consumers around the world.”
Major importers like India and China also face massive shipment delays, which could worsen shortages of key imported raw materials and intermediate goods. Red Sea freight disruptions come on top of the lingering supply chain crisis triggered by the COVID pandemic and Shanghai lockdowns.
Estimated Economic Impacts of Red Sea Shipping Disruptions
- 10-15% rise in consumer prices globally
- $200-300 billion hit to world trade
- 2 percentage point drag on annual GDP growth in Europe, North America
- 3-4 percentage point drag on annual GDP growth in MENA region, India, China
Diversion of vessels around Cape of Good Hope
Faced with spiraling insurance costs and safety risks, an increasing number of carriers are opting to avoid Bab al-Mandab entirely and instead sail south around the Cape of Good Hope.
This adds at least two weeks to Europe-Asia journeys and ties up vessel capacity that is badly needed elsewhere. It also incurs additional fuel costs estimated at $300,000 per voyage.
Diverting ships around Africa does help reduce immediate risks from Houthi attacks near Yemen. However, analysts say vessels are still vulnerable to threats like piracy in the Gulf of Aden and near the Horn of Africa.
“There is no easy solution here,” said Indian Navy Vice Admiral Hari Kumar, who oversees regional anti-piracy operations. “The southern Red Sea is effectively a no-go zone now. But even rerouted ships face danger from well-armed pirate gangs looking to capitalize on the chaos.”
Calls for international military response
While commercial carriers weigh flight against fight, world leaders are facing calls to organize a muscular military response to the Houthi attacks. However, direct intervention comes with its own hazards, as the messy history of conflicts in Iraq, Syria and Libya demonstrates.
“Any knee-jerk foreign military deployment could easily spark a regional war,” said Ibrahim Abdullah, an analyst with International Crisis Group. “The Houthis would likely be backed by Iran, threatening oil shipments through the Strait of Hormuz. Israel could also be drawn into the fray.”
Indeed, the U.S. Navy’s Bahrain-based Fifth Fleet is already on high alert in the Persian Gulf and Gulf of Oman. Nonetheless, pressure is growing on the White House and its allies to ensure the security of Red Sea shipping lines, by force if necessary.
Negotiations only path forward
With tensions rising, ships lining up outside African ports, and inflation threatening fragile pandemic recoveries, resolving the Red Sea crisis has become an international imperative. However, foreign military intervention could prove counterproductive by triggering an even wider conflict.
“EAPC nations urgently need coherent strategies to wind down the Yemen war,” said British MP Liam Byrne, referring to the Eastern Africa Power Pool countries. “Bombing the Houthis will not keep global trade moving.”
The most viable path forward, regional analysts contend, lies in direct negotiations between the major external powers backing each side in the Yemeni conflict. This includes the U.S., U.K., Saudi Arabia and UAE on one side, and Iran on the other. Only through mutually agreed restraints on the Yemeni players can the cycle of attacks and reprisals be broken.
“Hard as it may seem, dialogue remains the only credible option,” says Sash Jayawardane, a Red Sea security expert at the University of Colombo. “World leaders must make concerted good-faith efforts, or we risk an economic crisis that makes 2020 look mild.”
As ships stack up outside Suez and economic losses accumulate daily, de-escalating the standoff in the Red Sea Straits has indeed become an urgent imperative for global policymakers. Alleviating the world’s severe supply chain constraints may depend on progress around the negotiating table, not firepower alone on the water.
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