Why the Houthi attacks in the Red Sea threaten global trade

Middle East conflict - Why the Houthi attacks in the Red Sea threaten global trade

Shipowners are calling for stronger military protection of sea routes in the Middle East after attacks by Iran-backed rebels in the Red Sea sparked fears of new disruptions to global trade, including energy supplies. Just over a week ago, the Pentagon announced that a US warship and three merchant vessels had been attacked off the Yemeni coast. Last month, Houthi rebels had already targeted Israeli ships. The attacks in early December therefore raised concerns that the Houthi rebels and their supporters in Iran were expanding their campaign - in response to the war in the Gaza Strip.

The attacks showed that "greater military resources" needed to be deployed, says Jakob Larsen, head of security at Bimco, which represents global shipowners. "When three ships are attacked [on the same day] in the same geographical area, it means we don't have enough resources," he says.

The US National Security Advisor, Jake Sullivan, described the attacks as "completely unacceptable". He said the US was in talks with other countries about setting up a maritime task force to ensure the "safe passage of ships in the Red Sea".

It is a new threat to shipping - not so long ago, the coronavirus pandemic and the Russian invasion of Ukraine had caused supply chains to falter, fuelling inflation and cooling the global economy. The new threat could now affect trade in everything from crude oil to motor vehicles.

Majority of oil and liquefied natural gas shipments must pass through affected waterways

According to analysts, traders are now underestimating the risk of further disruption. "The oil market has become too complacent about the risk of the Gaza conflict spreading regionally and threatening oil and gas infrastructure and shipping in the Red Sea and Gulf," said Bob McNally, founder of Rapidan Energy and former White House adviser during George W. Bush's presidency.

Since 2019, the Houthis and other Iranian allies have attacked several ships in the Middle East, hijacked oil tankers and carried out attacks with limpet mines on ships' hulls. The recent attacks also heighten concerns about the threat posed by Iran to the Strait of Hormuz.

The recent attacks also heighten concerns about the threat posed by Tehran to the Strait of Hormuz - the strait that separates Iran from the Gulf states and is a bottleneck for oil and gas exports. McNally puts the probability of a "significant disruption to regional energy flows" at 30 percent. "Even if neither Tehran nor Washington seek direct conflict, they may not be able to avoid unintended clashes or halt the rising spiral of mutual aggression."

Around 40 percent of the oil traded by sea is transported through the Strait of Hormuz every day, as are liquefied natural gas supplies from Qatar, which play an important role as a substitute for Russian gas. According to the US Energy Information Administration (EIA), almost a tenth of the oil traded by sea is transported via the Red Sea route alone. Goods from Asia are also transported via this route.

The Bab el-Mandeb Strait, which separates the Gulf of Aden from the Red Sea, is even narrower and more vulnerable to attacks. "The route via the Red Sea is important," says Henning Gloystein from the Eurasia Group consultancy. "It's even more important for the Europeans because they get all their oil and liquid gas from the Middle East via the Red Sea."

In an attack on an Israeli car carrier in November, Houthi rebels boarded the ship by helicopter - a tactic that Gabrielle Reid of security consultancy S-RM says is "used much more frequently by Iran". "This suggests that commercial shipping in the region can be more disrupted," she added.

Alternative routes are longer and more expensive

Shipowners are now looking for safer but more costly alternative routes and are calling for more protection in Middle Eastern waters. New York-listed freight shipping company Zim, based in Israel, said it was rerouting some of its ships and warned customers of longer transit times. The alternative route involves sailing around the Cape of Good Hope near Cape Town and then past West Africa - a much longer and more expensive route.

And ship owners are already having to pay more for insurance, reroute ships and invest in additional security measures. In the week before the attacks in the Red Sea at the beginning of December, some insurers had already increased their rates, says Marcus Baker, Head of Shipping at insurance broker Marsh - in one case by as much as 300 percent. The market must "react" to the latest incidents, he said. However, he also said that shipowners have little choice but to stick to the existing route. "If you're trying to move [certain] goods around the world, you almost inevitably have to go through the Red Sea region."

The Chief Operating Officer of Seagull Maritime, Dimitris Maniatis, reports that his company is receiving "more and more" requests from shipowners around the world for armed guards. Many private security groups have been set up to counter the threat posed by Somali pirates. However, these can do "very little" against state-backed drone and missile attacks, said Maniatis.

"The risk of collateral damage has increased," said the head of security of a Singapore-based tanker owner. At least one of the merchant ships attacked on the first Sunday in December is said to have had no clear links to Israel. "We are easy prey for external attacks. No one is in a position to counter such a threat - unless it is a military intervention."

This article, translated from the "Financial Times", first appeared here in the business magazine "Capital", which, like stern, is part of RTL Germany.