The global economy is under threat as we are in an escalating maritime crisis. What is happening?
As the war in Gaza has raged for months, over 1,000 kilometres away, in recent days, Yemen's pro-Iranian Houthi rebels have stepped up their attacks on container ships allegedly linked to Israeli interests or bound for Israel. These attacks, carried out in retaliation for Israel's ground offensive on Gaza, have been intercepted several times by US warships.
Suspend sailing from the Red Sea
However, intercepting these attacks is not always certain. In this context, a number of global giants in the maritime sector have started to announce that they are suspending sailing from the Red Sea for security reasons. Indicatively, the Taiwanese shipping company Evergreen has announced that container ships scheduled to transit the Red Sea will change course around the Cape of Good Hope to continue their voyages to their destinationsw, according to the website kathimerini.gr.
With one of the world's most important trade arteries closing, both the United States and its allies are stepping up maritime activity in the Middle East. The stakes of keeping the Bab el-Mandeb Strait open are huge: about 12% of the world's trade by volume and about 30% of the world's container traffic passes through it.
Economist analysis
The escalating situation in the region over the past 24 hours has two main implications according to an extensive Economist analysis: one is for the global economy and the other is the risks of military escalation in the Middle East if the West intervenes militarily.
As far as the economy is concerned, Egypt, which relies heavily on the Suez Canal (at the northern end of the Red Sea) for its revenues, will be directly affected. Israel will be less affected, as only about 5% of the country's trade is based on the port of Eilat, which borders the Red Sea.
For the global economy, a prolonged closure of the Suez Canal will increase the cost of trade, as the transport of goods will be entirely around Africa. Such a development would require more time for transport and would cause insurance premiums to skyrocket. Short-term problems in supply chains cannot be ruled out either.
Indicative of the shipping importance of the region is 2021, when the Ever Given ship ran aground and blocked the Suez Canal for just six days, directly affecting already strained supply chains. In this case, if there is a serious security crisis in the southern Red Sea, then things look even more complicated for both global trade and global maritime oil supply.
Immediate military strikes on the table
The decision to strike against the Houthis in Yemen is not a simple matter. For years Iran trained and armed the group during the Yemeni civil war. "The Houthis have a giant arsenal of anti-ship missiles in this region," notes Fabian Hinz of the International Institute for Strategic Studies think tank.
In this context, diplomacy could, in the first instance, play a role in de-escalating the crisis. A commitment to stop Houthi attacks on naval targets should be part of this diplomatic solution. However, with the war in Gaza in full swing, such a solution is not currently on the horizon.
At present, a large multinational task force led by the US Navy is already operating off the Yemeni coast to prevent the Houthis from seizing ships or attacking them with missiles. It is worth noting that Saudi Arabia and Egypt have also joined this multinational force.
However, as far as the Biden administration is concerned, the Economist believes that it does not wish at this time to become further involved in the situation that has developed in the Middle East. Instead, he has preferred, so far, to exert diplomatic and economic pressure on Iran. On the other hand, Israel is already waging a war on the territory of Gaza, while in the north it is on constant alert because of Lebanon's Hezbollah.
However, if the Houthis (backed by Iran) continue their attacks that keep one of the world's most important trade routes closed, escalation may be inevitable.
