Rising Tensions at the Red Sea
The Red Sea serves an important role in the global economy, with cargo vessels traveling between the Indian Ocean and the Mediterranean Sea every year, thus shortening the path between Asia and Europe almost by half – as compared to traveling around Africa via the Atlantic Ocean.
The Houthis, who control much of Yemen including the capital, have since October attacked in the Red Sea commercial vessels they say have Israeli links or are sailing to Israel, in solidarity with Palestinians in Gaza.
Resent developments on the situation is something that needs to be acknowledged. In general, whilst there is a considerable amount of geopolitical risks outstanding in the world right now, Russia-Ukraine, Israel/Palestinian-Hamas, China-Taiwan, it is fair to say we are yet to see a culminating effect on markets.
The rising situation in the Red Sea has been tense in recent weeks, due to the mounting number of attacks by Yemen’s Houthi rebels on ships. Serving as one of the most significant shipping routes in the world, the attacks are raising concerns about the impact on global trade. The Yemeni rebel group, the Houthis, have been targeting vessels on the southern Red Sea and in a narrow corridor between Yemen and Africa called the Bab al-Mandab Strait. The group has fired multiple projectiles from Houthi-controlled territory at ships.
Global Economy
Houthi rebels under the leadership of Zaidi religious leader Hussein al-Houthi, emerged as an opposition movement to Yemen’s previous president Ali Abdullah Saleh, who was accused of corruption and being backed by Saudi Arabia and the United States (US). As Houthi insurgents continue to intercept trade ships and pose an active threat to global trade prices, markets, and thus the global economy, the US and its allies have since began to engage the rebels to stop their offensive attacks.
The situation is evolving on a day-to-day basis, and several warships have already been involved in responding to these attacks. The southern Red Sea has been declared a high-risk zone by marine insurers in London, prompting shipping companies to obtain additional war risk coverage. Adding to the concerns, major container shipping companies such as MSC, Maersk, CMA CGM, and Hapag-Lloyd began suspending Red Sea sailings in December 2023. BP has also halted all shipments of oil and gas through the region. The US has announced a naval coalition to defend Red Sea shipping from Houthi attacks however the situation is still tense, and the threats have escalated further in the past week with more countries having already or are planning to join the conflict.
Escalations of War with More Countries
According to the latest reports, more than 20 countries have joined the US-led coalition to protect Red Sea shipping from attacks by Yemen’s Houthi rebels . The coalition was formed after the Houthis repeatedly targeted vessels in the vital shipping lane with strikes they say are in support of Palestinians in Gaza, where Israel is battling Hamas group. The situation has led to at least a dozen shipping lines suspending operations. However, some countries are hesitant to join the coalition due to fears of expanding the Israel-Hamas war and “worrying signs of a potential major escalation”.
The US announced a multinational force to secure Red Sea shippings against Houthi attacks, and the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain are due to join the US in the new mission. Some nations howeer have not confirmed their participation, and others have resisted joining the US-led effort. The situation is still tense, and the threats including resulting consequenses have escalated further in the past week.