What happened in the Houthi Attacks in the Red Sea?
In an apparent ‘retaliation’ attack against Israel for their military actions in Gaza, the Iran-backed Houthi rebels in Yemen recently initiated strikes on ships in the Red Sea. Since mid-November 2023, Houthi has been attacking commercial vessels in the Red Sea on a frequent basis through drones and missile attacks. The Houthi rebels support Hamas and the Palestinian people.
The Suez Canal provides the shortest maritime route between Europe and Asia. The Suez Canal is a major connecting route between the Mediterranean Sea and the Red Sea. The Suez Canal has been a crucial passage in providing goods and fuel from Asia and the Middle East to Europe and the US. The fact that the Red Sea faces significant security challenges poses a substantial threat to Asian cargo carriers that travel in the Suez Canal.
According to the United Nations Conference on Trade and Development, more than 80% of the global goods trade is transited by sea. According to CNN, 12% of global trade flows through the Red Sea.
As a result of the Houthi attacks, Maersk, Hapag-Lloyd, CMA CGM Group, and Evergreen, four global major shipping firms, announced that they would pause shipping through the Red Sea due to risks posed by the Houthi attacks. According to the Financial Times, almost a tenth of global demand in oil shipments passes through the Red Sea. The Atlantic Council stated that 7 out of the 10 largest shipping companies by market share had suspended operations in the Red Sea. BP, the oil giant, announced that it halted all shipments via the Red Sea, which would likely drive oil and gas prices to surge.
In the Asian market, Japanese container shippers such as the Ocean Network Express (ONE) announced on 19 December 2023 that it would reroute vessels away from the Red Sea. ONE is the largest global shipping operator to halt navigation through the Red Sea. This move indicates how Asian supplies would face higher fuel and shipping costs due to the Houthi attacks in the region.
On 18 December 2023, the US announced the establishment of Operation Prosperity Guardian (OPG), a coalition led by the US, in combating security challenges in the southern Red Sea and Gulf of Aden. The OPG includes, inter alia, the UK, Bahrain, Canada, France, Italy, Norway and Spain. However, Arab countries including Egypt and Saudi Arabia are absent. On 6 December 2023, Saudi Arabia requested the US to restrain its response to Houthi attacks. Lloyd Austin, the US Secretary of Defense, stated that the Houthi attacks constituted a violation of international law.
Analysis: Consequences to Global Supply Chain and Energy Prices
To maintain operations, some commercial ships are now travelling via the Cape of Good Hope in South Africa. Longer shipping distances and transit time would be required, which would further heighten shipping and transportation costs, causing strains on global trade and inevitably affecting global supply chains. According to the Guardian, insurance risk premiums for sailing through high-risk areas have been rising at a rapid rate since the start of December 2023.
The Panama Canal is limiting the passage of ships because of low water levels caused by droughts. The simultaneous disruption of two maritime routes would cause a substantial impact on global supply chains.
I-OnAsia continues to monitor and report on the latest developments in the Israel-Hamas Conflict which is causing significant knock-on disruption for clients with goods at sea.
Our 20 years of experience and expertise in shipment tracking for our global clients and more broadly observations and investigations into disruptions with respect to increased risk for our Asian supply chain clients has seen a significant uptake in assignments in the region so as to provide our clients with the latest intelligence on the current challenges. Our global teams continued efforts in due diligence and risk assessments on new routes and alternative methods of transportation of urgently required goods is underway, and we are working closely with other agencies and partners to support our clients in minimising disruption whilst ensuring the safety and security of assets and importantly staff operating in a tense a high stress environment.
This ongoing work intelligence and ground support is assisting our global clients to understand the risks in their supply chains during such challenging times. More to follow.