Houthi attacks on commercial ships in Red Sea threaten global economy

The wave of attacks on merchant ships in the Red Sea is forcing companies to send their ships on longer routes and threatens to harm an already faltering global economy.

The Houthis, an Iranian-backed armed group that controls much of northern Yemen, have used drones and missiles to target ships since Hamas attacked Israel on October 7. That has forced some shipping giants and oil companies to avoid the Suez Canal, a development that could hamper global trade and raise the cost of imported goods.

The Suez is a vital artery for container ships and oil tankers. Goods and fuel from Asia and the Middle East have transited to Europe and the United States through this crossing since it opened in 1869. Britain and other world powers have fought wars and engaged in geopolitical intrigues around the canal, now controlled by Egypt. for over a century.

About 50 ships pass through the Suez Canal each day, and recent data suggests that as of Monday at least 32 had been diverted, said Chris Rogers, head of supply chain research at S&P Global Market Intelligence. He noted that almost 15 percent of European imports were transported by sea from Asia and the Persian Gulf, with most passing through the Suez Canal.

Peter Sand, chief analyst at Xeneta, a shipping market analysis firm, described the Red Sea and canal problems as “a slow-burning disaster that really exploded over the weekend.” He added: “Everyone involved in global shipping, particularly in the supply chains linked by the Suez Canal, is trying to figure out where their goods are and where they are heading. »

On Monday, U.S. Defense Secretary Lloyd J. Austin III announcement a new multinational force that would seek “to jointly address security challenges in the southern Red Sea and the Gulf of Aden, with the aim of ensuring freedom of navigation for all countries and strengthening security and regional prosperity.

The joint effort, which will include the armed forces of the United States, Britain, Bahrain, Canada and France, was announced after a US warship on Saturday shot down 14 drones launched from the territory controlled by the Houthis.

On Monday, BP, the oil company, announced it was suspending shipments through the Suez Canal, citing the “deteriorating security situation in shipping.”

Companies that transport products such as toys and electronics from Asia on vast container ships also announced they would stop sending ships to the region. A ship belonging to one of these companies, Maersk, was attacked last week.

Maersk said On Tuesday, all of its Red Sea-bound ships would be diverted around Africa via the Cape of Good Hope “to ensure the safety of our crew, vessels and customers’ goods on board.” Until it is safer to use the route, the detour around Africa would be “a quicker and more predictable outcome for customers and their supply chains”.

The instability near the Suez Canal comes at a time when a drought has forced operators of the Panama Canal, another critical link in global supply chains, to reduce the number of ships that can use that waterway.

About 12 percent of world trade passes through the Suez Canal and 5 percent through the Panama Canal. When shipping companies avoid canals, they often have to spend millions of dollars more on fuel to allow ships to take longer routes.

Sailing from Asia to Europe via the Cape of Good Hope instead of the Suez Canal is a diversion that would lengthen the journey from Singapore to Rotterdam in the Netherlands by 3,300 miles, or almost 40 percent.

Mr Sand said taking the Cape of Good Hope route could add about $1 million, or about a third, to the cost of a round trip from Asia to Europe. He added that some shipping rates had increased by 20 percent in recent days.

Some of this additional cost could be passed on to consumers just as inflation slows in the United States and Europe.

The attacks already appear to have driven up the price of oil. Brent crude, the international oil benchmark, has risen about 8 percent over the past week.

The economic impact has increased pressure on the United States and other countries to end Houthi attacks. Shipping officials have said such a force is needed.

“If you closed the Suez Canal, it would have huge repercussions,” said Oystein Kalleklev, chief executive of Avance Gas, which transports propane from the United States to Asia. “So we believe there will be enough warships to stabilize the situation.”

A little over two years ago, the Suez Canal was the source of a new supply chain scare. One of the largest container ships ever built was stuck for days in the canal, preventing other ships from using the crossing. This episode occurred when supply chains were overwhelmed by the huge demand for appliances, electronics and other goods during the pandemic.

In comparison, the current attacks in the Red Sea are occurring during a period of relatively low demand. As a result, S&P’s Mr. Rogers said in an email, their effect will be limited “if the disruption lasts days rather than weeks or months.”

Delays in the Panama Canal have prompted some shipping companies that move goods from Asia to the U.S. East Coast to send their ships through the Suez Canal. But problems in the Red Sea could now force them to round the Cape of Good Hope, extending these voyages even further.

Unlike the Suez Canal, the Panama Canal uses locks that lift ships as they cross from coast to coast. The lack of rain reduced the amount of water available to fill the locks, and Panama Canal authorities had to reduce the number of ships using the waterway. This figure could fall further as the dry season has only just begun.

“The Panama Canal situation,” Mr. Kalleklev said, will not be “over anytime soon.”