Tensions in the Red Sea spread to Yemeni lands after the United States and the United Kingdom carried out bombings against several sites controlled by the Houthi armed group on Thursday evening.
The Houthis have carried out dozens of attacks on commercial ships they say are linked to Israel that were passing through the 30-kilometre-wide Bab-el-Mandeb Strait. They demand that Israel stop the bombing of Gaza and allow humanitarian aid.
A U.S.-led coalition is trying to deter the Houthis by positioning destroyers and other military platforms in the Red Sea and shooting down the Yemeni group’s missiles and drones. But the Houthis have made clear they have no intention of stopping until Israel ends its war, which has killed nearly 24,000 Palestinians.
Traffic crossing the Red Sea has fallen by more than 40%, disrupting global supply chains. Some of the world’s largest shipping operators have rerouted their ships around the Cape of Good Hope at the southern tip of Africa, delaying delivery times and adding another 3,000 to 3,500 nautical miles (6,000 km) to their itinerary.
But to what extent have the Houthi attacks impacted the Israeli economy itself? And how do they affect global trade?
What’s happening on one of the world’s busiest shipping lanes?
So far, at least 26 ships have been attacked by the Houthis since they seized the Israel-linked ship Galaxy Leader in November.
US warships in the region have foiled several other Houthi attacks, the latest coming on Wednesday, when the US and UK shot down missiles and drones. The UN Security Council on Wednesday condemned the Houthi attacks.
The Red Sea connects Asia to Europe and the Mediterranean, via the Suez Canal. Currently, about 12% of global shipping passes through the Red Sea, averaging about 50 ships per day, carrying between $3 billion and $9 billion in goods. In total, the value of goods transiting this route is estimated at more than a trillion dollars per year.
Are all maritime vessels affected?
Container shipping appears to have been hit hardest. However, data published by Reuters earlier this week appears to show that tanker passage has barely been affected.
Data cited by MariTrace showed that in December, an average of 76 oil cargo ships were expected to be located in the Red Sea, just two fewer than the previous month’s average. Other trackers reported a slight increase over the same period.
In early January, the Houthi rebels announced that if a ship wishing to transit the area declared its ownership and destination before entering the waters, it would not be targeted.
Maersk and Hapag-Lloyd have since denied reaching an agreement with the rebel group.
Have the attacks undermined Israel’s reputation as a secure trading partner?
As of mid-December, Israel’s only port on the Red Sea, Eilat, reported an 85 percent drop in activity since the attacks began.
While most of Israel’s maritime traffic passes through the Mediterranean ports of Haifa and Ashdod, exports of potash from the Dead Sea, as well as imports of Chinese-made cars – which account for 70% of electric vehicle sales in Israel – depend on Eilat.
For many carriers, the risks to the vessel and crew are significant. This week, Chinese state carrier Cosco joined its subsidiary OOCL in suspending shipments to Israel.
However, Brad Martin, a former US Navy captain and director of the RAND Corporation’s Institute for Supply Chain Security, cautioned against exaggerating the challenge to Israel.
“Disruptions to shipping on the Red Sea, and even the refusal of some shippers of Israeli goods, will not bring Israel to its economic knees,” he wrote by email.
“The flow across the Mediterranean will likely continue unimpeded. Israel is probably better placed than most of its neighbors to absorb disruption. However, shipping and trade may be subject to diplomatic and political actions, so economically damaging isolation could certainly occur on this front,” he said.
What could be the long-term impact?
Although analysts agree that the direct impact of Houthi rebel attacks on the Israeli economy has been limited, the longer the disruption continues, the greater the repercussions could be.
An acute vulnerability may lie in Israel’s ambitions to establish itself as an exporter of liquefied natural gas (LNG), for which it holds a small but growing share of the vital international market.
“Before the (October 7) attack, Israel was on its way to becoming a reliable gas exporter,” said Gabrielle Reid, associate director of risk consultancy S-RM.
“But the hostilities have exacerbated the political risk of doing business in Israel and further undermine the Eastern Mediterranean region’s prospects as a potentially important player in global natural gas markets,” she said.
What was the effect elsewhere?
According to Clarkson Research Services Ltd, traffic crossing the Red Sea is currently down 44 percent compared to that recorded in the first half of December, as an increasing number of ships take the longer route around the Cape of Good Hope to reach the port.
Aside from the obvious costs of increased fuel and labor, this leads to increased insurance costs and can lead to delays as congestion at ports takes its toll.
According to the Drewry World Container Index, which tracks shipping along eight major routes between the United States, Europe and Asia, the cost of transporting a 40-foot (12-meter) container from China to Europe is expected to rise 248 percent, from $1,148 in November. , when the attacks began.
Depending on the reaction from shipping companies, Simon Heaney, senior container research manager at Drewry, told Tel Aviv Tribune that overall costs could rise between 3 and 21 percent.
Delays will also be a significant factor, as most “just-in-time” manufacturing processes in developed economies, where goods are delivered moments before they are needed, struggle to accommodate interruptions.
What impact could this have on the global economy?
Even though current demand for manufactured goods from countries like China and India remains lower than at the height of the pandemic, any changes in costs or disruption to shipping schedules are likely to have consequences.
However, while rising transport costs may lead to inflation – the International Monetary Fund has estimated that chaos on shipping routes during the pandemic led to a 1% increase in global inflation – this does not is not yet produced, economists suggest.