Yemen's Houthi rebels have transformed the Red Sea into an area of conflict, prompting significant shipping companies and oil conglomerates to alter their operational routes. This disturbance is having a profound impact on global trade, creating a state of upheaval with repercussions affecting supply chains, contributing to price surges, and causing delays in crucial deliveries.
The Bab al-Mandab Strait, a critical gateway to the Red Sea, has become a focal point of hostilities, with Houthi rebels, aligned with Iran, targeting vessels in response to Israel's actions in Gaza.
This situation has compelled prominent shipping entities like Maersk and Hapag-Lloyd, as well as oil and gas heavyweight British Petroleum (BP), to suspend all Red Sea transits for the safety of their crews. Such precautionary measures have been implemented due to rising tensions and confirmed attacks on container ships and oil tankers.
The impact is reverberating in energy markets, with both oil and European natural gas prices witnessing an increase due to concerns arising from these assaults.
The Suez Canal, a vital waterway responsible for around 12 percent of global trade, is experiencing a decline in ship passages. This crucial route for Asia-Europe trade is now at risk of causing widespread disruptions in supply chains. Alternative routes, such as circumventing Africa via the Cape of Good Hope, may extend shipping voyages by an estimated additional week to ten days or more.
In response to the threats issued by the Houthis, who vowed to target vessels bound for Israel, naval forces from the US, UK, and France have engaged in intercepting rogue drones and missiles. The Pentagon has announced the formation of a US-led coalition, Operation Prosperity Guardian, involving over 20 countries to safeguard commercial traffic in the Red Sea. Joint patrols and heightened security measures aim to counter Houthi aggression.
This escalating situation has compelled traders to seek alternative logistics solutions, including air transport, to mitigate delays resulting from extended sea routes. The impact on shipping costs is already evident, with container shipment rates from China to the Mediterranean experiencing a 44 percent surge in December. Experts caution that if the situation persists, spot prices for cargo could witness significant and dramatic increases.
