Houthi attacks in Red Sea upend global trade, multinational naval force formed

Major shipping companies and oil producers are steering clear of the Red Sea following a series of attacks by Yemen’s Houthi rebels.

The strategic Bab al-Mandab Strait, a key passage to the Red Sea, has become a hotspot for hostilities, with the Iran-aligned Houthis targeting vessels in retaliation for Israel’s actions in Gaza. This disruption has thrown global trade into turmoil, threatening supply chains, inflating prices, and delaying vital deliveries.

Energy supplies disrupted, prices surge
After shipping giants Maersk and Hapag-Lloyd, oil and gas heavyweight British Petroleum (BP) became the latest to halt all Red Sea transits as a safety measure for its crew, affecting the transport of oil and natural gas. This precautionary step comes amid rising tensions and confirmed assaults on container ships and oil tankers.

The repercussions are being felt in energy markets, with both oil and European natural gas prices experiencing an uptick due to concerns over these attacks.

Suez Canal chokehold threatens supply chains
The Suez Canal, responsible for approximately 12 per cent of global trade, is facing a reduction in ship passages. This vital waterway, crucial for Asia-Europe trade, is now at risk of causing widespread disruptions in supply chains.

Alternate routes, such as circumnavigating Africa via the Cape of Good Hope, could add significant time to shipping voyages, with estimates ranging from an additional week to ten days or more.

US-led coalition formed to secure maritime routes

The Houthis had threatened to target all vessels bound for Israel, prompting naval forces from the US, UK, and France to engage by intercepting rogue drones and missiles. In response to the escalating threat, the Pentagon has announced that over 20 countries have joined a US-led coalition, Operation Prosperity Guardian, to protect commercial traffic in the Red Sea.

The initiative will see joint patrols and heightened security measures to counter Houthi aggression.

Logistics industry scrambles for solutions
The ongoing tensions has forced traders to seek alternative logistics solutions, including air transport, to mitigate the delays caused by longer sea routes. The impact on shipping costs is already evident, with container shipment rates from China to the Mediterranean soaring by 44 per cent in December. Experts warn that if the situation persists, spot prices for cargo could see dramatic increases.