Reveling the Impact: Houthi Attacks & Disruption on Global Trade
Amidst concerns of Yemen’s Houthi rebels targeting commercial vessels in the Red Sea, several prominent shipping companies and oil giants have opted to reroute their operations, significantly impacting global trade. This shift away from a pivotal artery for consumer goods and energy supplies is anticipated to cause delays and a surge in shipping costs in 2024.
The Red Sea Crisis
BP, based in London, announced a temporary ceasing of all transits through the Red Sea as a precautionary measure, prioritizing crew safety. The unsettling attacks by the Iranian-backed Houthis have prompted market unease, leading to a rise in both oil and European natural gas prices. These assaults on container ships and oil tankers passing through the narrow waterway between Yemen and East Africa, serving as a passage to the Red Sea and Suez Canal, affect approximately 10% of global trade.
The ramifications extend beyond crucial energy supplies reaching Europe and other regions. Essential commodities like palm oil, grain, and a majority of manufactured products, transported via container ships, traverse the Suez Canal.
International Response
John Stawpert, the senior manager of environment and trade at the International Chamber of Shipping representing 80% of the world’s commercial fleet, emphasized the immense economic impact. He highlighted that 40% of Asia-Europe trade usually traverses this waterway.
Responding to the escalating threat, US Defence Secretary Lloyd Austin declared the establishment of Operation Prosperity Guardian, a multinational security initiative involving the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain, to safeguard ships transiting the Red Sea.
Shipping Companies' Reactions
In response to the heightened risks, four leading container shipping companies, namely MSC, Maersk, CMA CGM Group, and Hapag-Lloyd, have either halted or diverted movements through the Red Sea. This redirection might force vessels to travel around the Cape of Good Hope, potentially elongating voyages by a week to 10 days, or even longer, impacting global trade.
Consequently, companies may need to augment their fleets, increase fuel consumption due to longer journeys, or hasten their pace, thereby releasing more carbon dioxide. This shift could result in longer transit times, heightened fuel expenditure, potential disruptions, and delays, particularly in initial arrivals in Europe.
The supply chain disruptions, exacerbated by the surge in orders during the COVID-19 pandemic, drove consumer prices worldwide. Stawpert foresees short-term price increases contingent upon the duration of the security threat.
The Houthis’ recent heightened attacks on ships without clear ties have raised concerns. While some vessels encountered hits or near-misses, the specifics of these assaults remain undisclosed. For instance, the Swan Atlantic, carrying vegetable oils to France’s Reunion Island, was struck by an unknown object, causing a minor fire that the crew promptly extinguished.
Houthi Attacks: Escalation and Targets
Austin’s announcement of a coalition to address the Houthi threat aims to complement existing patrols in the region by the US, French, UK, and other coalition warships. This bolstered presence could instil confidence in the shipping industry, mitigating the threat to some extent.
Environmental and Economic Concerns
Simultaneously, disruptions expected in the Red Sea coincide with limitations in the Panama Canal, another vital trade route between Asia and the United States. Analysts suggest that while some companies intended to redirect their routes to the Red Sea to bypass Panama Canal delays caused by inadequate rainfall, the fear of Houthi attacks might deter such alternatives. Consequently, those seeking to avert risks and delays from both global trade arteries may resort to the longer journey around Africa.
Dual Disruptions: Red Sea and Panama Canal
This confluence of disruptions poses challenges for Egypt, as the cancellations will impact the millions in fees that shipping companies contribute to clearing the Suez Canal. This financial setback further burdens a country grappling with high inflation and a weakening currency.
The significance of these events is substantial, underscoring the fragility of global trade routes and the vulnerabilities faced by both businesses and nations reliant on these passages. The strategic importance of the Red Sea and Suez Canal as major conduits for international trade cannot be overstated. The recent threats and disruptions highlight the critical need for collaborative security measures to safeguard these vital maritime channels.
Conclusion
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As tensions persist and global commerce adapts to circumvent potential risks, the economic reverberations are likely to be far-reaching. Proactive diplomatic and security interventions are imperative to restore confidence in maritime trade routes and prevent prolonged disruptions that could exacerbate supply chain challenges and escalate economic uncertainties on a global scale, having a massive impact on global trade forcing shipping lines to increase shipping costs in 2024 to cover fuel costs, longer journeys and insurance claims which are inevitable the S&P Global shows inflationary pricing has started.
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