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The Impact of Houthi Attacks on Global Trade: Rerouting and Potential Disruptions

The Impact of Houthi Attacks on Global Trade: Rerouting and Potential Disruptions

The Impact of Houthi Attacks on Global Trade: Rerouting and Potential Disruptions

In recent times, the Red Sea has become a zone of concern as Yemen’s Houthi rebels have intensified their attacks on commercial vessels, prompting some of the world’s leading shipping companies and oil giants to rethink their routes. This shift in maritime dynamics is expected to have significant repercussions on global trade, affecting consumer goods and energy supplies and potentially leading to delays and increased prices.

One notable player in this recalibration is BP, which announced a temporary pause on all transits through the Red Sea, covering shipments of oil, liquid natural gas, and other energy supplies. The London-based oil and gas corporation cited crew safety as a priority, emphasizing the “precautionary pause” nature of the decision, subject to ongoing review.

The market response to these attacks has been reflected in the rise of both oil and European natural gas prices. The Houthi rebels, with reported backing from Iran, confirmed new attacks on Monday, marking the latest incidents targeting container ships and oil tankers passing through the narrow waterway that separates Yemen from East Africa, leading to the Red Sea and the Suez Canal – a crucial route facilitating around 10% of global trade.

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The impact extends beyond energy supplies, reaching critical sectors such as food transportation. Container ships carrying products like palm oil, grain, and the majority of the world’s manufactured goods traverse this region, often heading through the Suez Canal. While most Christmas-related goods are likely already delivered, analysts predict potential delays in online orders due to major container shipping companies, including MSC, Maersk, CMA CGM Group, and Hapag-Lloyd, pausing or rerouting movements through the Red Sea.

Simon Heaney, senior manager of container research for Drewry, a maritime research consultancy, notes that the rerouting of these major alliances will likely result in longer transit times, increased fuel consumption, and potential disruption and delays, particularly in the first arrivals in Europe. Ships opting for the longer journey around the Cape of Good Hope, at the bottom of Africa, could add approximately 10 days or more to their voyages.

The consequences of such decisions extend beyond logistical challenges. Increased transit times and fuel consumption contribute to higher shipping costs, though Heaney suggests that the impact might not reach the levels witnessed during the pandemic-induced supply chain disruptions. Nevertheless, the environmental implications of burning more fuel and releasing additional carbon dioxide are concerns, emphasizing the complex trade-offs involved in rerouting decisions.

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The Houthi attacks, previously focused on Israeli-linked vessels during the Israel-Hamas conflict, have escalated in recent days, targeting ships without clear ties. Brig. Gen. Yahya Saree, the Houthi military spokesman, confirmed new attacks on vessels such as the Swan Atlantic and MSC CLARA. While the Swan Atlantic, carrying vegetable oils, experienced a small fire from an unknown object, the crew managed to extinguish it, and the ship continued its journey with military aid.

U.S. Defense Secretary Lloyd Austin condemned the attacks, describing them as reckless, dangerous, and a violation of international law. He announced plans to convene a meeting with regional ministers to address the Houthi threat on shipping, emphasizing the commitment to ensuring freedom of navigation in the area.

The disruptions in the Red Sea come at a critical time, coinciding with restrictions on shipping through the Panama Canal, another major trade route between Asia and the United States. Some companies had considered rerouting to the Red Sea to avoid delays caused by a lack of rainfall in the Panama Canal. However, the threat of Houthi attacks may deter some from this alternative, leading to a scenario where those seeking to mitigate risks and delays from both trade arteries will have to opt for the longer journey around Africa.

Simon Heaney describes the convergence of challenges in both the Suez and Panama canals as unprecedented, noting that while neither canal is closed, they are becoming less viable for the short term. This situation poses additional challenges for Egypt, as shipping companies’ cancellations mean a loss of millions in fees paid to clear the Suez Canal – a significant source of income for a country already grappling with economic difficulties, including high inflation and a weakening currency.

In summary, the Houthi attacks in the Red Sea have triggered a significant realignment in global trade routes, with major shipping companies opting to pause or reroute through alternative paths. The potential for delays, increased shipping costs, and environmental concerns adds complexity to the already intricate web of global supply chains. As diplomatic and security efforts intensify to address the Houthi threat, the implications for trade and economies remain uncertain.

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