Houthi squeeze on Red Sea shipping risks enormous cost to global economy 

The Houthi rebel group in Yemen has almost completely shut down a key shipping route in the Red Sea, costing the global economy and setting up a huge challenge for the White House. 

The relentless Houthi attacks on merchant vessels and commercial boats pushed several of the world’s largest shipping companies to cancel transits through the Red Sea. Oil-producing giant BP also decided to avoid the shipping lane.

Now, merchant boats are forced to take the long way around, circling Africa and the Cape of Good Hope to reach their destinations. 

Nick Childs, a senior fellow for naval forces and maritime security at the International Institute for Strategic Studies (IISS), said the Red Sea threat has the potential to damage the global economy in the long term, adding the conflict points to a more unstable world that must be addressed. 

“Economies have to absorb the increased costs and that will have an impact, not just on the maritime industry, but [also on] economic health more generally,” he said. “There has to be more attention paid to maritime security and maritime domain awareness.” 

“But there is another problem,” Childs continued. “Navies are a lot more busy doing other things as well, including worrying about Russia-Ukraine, worrying about what may or may not be happening in the Indo Pacific.” 

The Red Sea is a major shipping lane route, facilitating roughly 10 percent of the world’s commerce each year. 

Sailing through the Suez Canal and down the Red Sea and Gulf of Aden offers a shortcut connecting Europe to Asia and the Pacific region; it is used by about one-third of global shipping companies. 

Rerouting all the way around Africa adds some 3,000 nautical miles and up to two weeks of travel, and shipping companies are now adding the extra costs as a transit disruption surcharge or a war risk surcharge, as referred to by Israeli shipping company ZIM. 

“Diverting vessels around the Cape of Good Hope to mitigate the ongoing risks of sailing through the region is a necessary step in the interest of safety, but it has ultimately brought about increased costs for carriers,” said Danish shipping giant Maersk in an advisory. 

The reroutes affect 17 percent of global shipping traffic, and cargo costs for carriers are expected to soar 15 to 20 percent, according to the American Journal of Transportation. 

If the problem persists, the impact on the global economy will be measurable and could trickle down to the average consumer, said Alan Deardorff, a professor emeritus of public policy and economics at the University of Michigan.  

Still, Deardorff added the greater cost will be on shipping companies and their suppliers. 

“They’re going to be hurt by it, absolutely,” he said, but noted there would be a limit in how much that could trickle down. “The effect on average price and the effect on inflation might be measurable, but I don’t think it’s going to be something people will correctly notice.” 

The Houthis, who are backed by Iran, say they are targeting Israel-based ships or vessels headed to Israel. They are attacking ships as they cross the strait of Bab el-Mandeb, connecting the Red Sea to the Gulf of Aden. 

The Red Sea hostilities are part of a pattern of Middle East attacks from Iranian-backed groups against the U.S. and Israel in response to the Israel-Hamas war. With Israel vowing to continue fighting against Palestinian militant group Hamas until it is destroyed, the Middle East region is expected to remain unstable. 

More than other Iranian-backed groups, the Houthis have carried out bold tactics, sending in a helicopter team to seize a commercial boat in November and damaging another ship earlier this month with rockets. They have often launched a barrage of drones and missiles to target ships and U.S. naval assets.

The U.S. announced a new task force last week involving several nations to deter the Houthis from carrying out the attacks and protect merchant ships. But the task force simply builds on an existing team under the multinational Combined Maritime Forces, which is already deployed to the Red Sea. And the Houthis have promised to continue the attacks.

“We will make American battleships, interests, and navigation the targets of our missiles, drones and military operations,” said Houthi leader Abdul-Malik al-Houthi in a late December speech shared on an Iranian resistance group Telegram page.

The Houthis have also taunted the U.S. for firing expensive missiles to counter cheap drones in the Red Sea. 

Pentagon press secretary Maj. Gen. Pat Ryder told reporters last week that the task force, called Operation Prosperity Guardian, will serve as a “highway patrol” in the Red Sea that will pressure the Houthis. 

“It’s a defensive coalition meant to reassure global shipping in mariners that the international community is there to help with safe passage,” he said. “The Houthis need to stop these attacks. They need to stop them now.” 

“And they really need to ask themselves if they’ve bitten off more than they can chew when it comes to taking on the entire international community and negatively impacting billions and billions of dollars in global trade, economic prosperity and international law,” Ryder continued. 

Even if it fails to stop Houthi attacks, the task force could at the very least give merchant boats the protection they need to safely cross. 

After announcing it would no longer transit the Red Sea, Maersk now plans to send more ships through the Suez Canal and the Red Sea, according to Reuters. 

And French company CMA CGM Group is also increasing the number of ships it is sending through the Red Sea, according to a company notice this week. 

But German-based shipping company Hapag-Lloyd said in an update it was frequently monitoring the situation and will resume normal transit when “it is deemed safe for our vessels, crews and your cargo on board.”

Swedish company MSC, which recently had one of its vessels attacked by the Houthis, has also not announced a change in plans, along with other companies that have paused Red Sea transits. 

Childs, the expert from the IISS, said the region is facing its most persistent maritime threat since the Somali pirate threat about a decade ago. 

But Childs said shipping companies were able to deter pirates by bolstering security.

The Houthis, he said, are displaying new tactics, firing anti-ship cruise and ballistic missiles, and they are a state actor, as opposed to non-state actors like Somali pirates.

“It’s a much more sensitive and complicated political arena that they’re operating in at the moment,” he said of the U.S. and its allies. Childs raised doubts of whether the new task force will deter a long-term security threat in the region. 

”The question that is growing in people’s minds is you can’t be on the defensive in perpetuity if it’s not having any effects that reduces your deterrence,” he added. “So what are the alternatives?”