Impact of Houthis attack in Red Sea | op-ed |24-june-2024
Following escalating attacks by Houthis on commercial ships in the Red Sea, global trade concerns have surged. Houthis are carrying out indiscriminate attacks in Red Sea in response to Israel’s cruel and inhumane action in Gaza. Given the centrality of maritime commerce to the global economic framework, any disruption to these vital sea lanes carries profound ramifications. The global response to the Houthis attacks in the Red Sea has escalated tensions precariously, risking further conflict and disrupting maritime traffic, which could severely impact the global economy. The U.S. and British naval forces have responded to the Houthis attacks by destroying their missile storage locations and drones through Tomahawk missiles launched from submarines and warships.
Red Sea serves as a critical sea route for maritime commerce, with nearly 15 percent of global shipping traffic traversing this route, including oil exports and 30 percent of global container shipping volume. However, with the sporadic targeting of merchant ships in Red Sea by Houthis, global shipping has been forced to reroute via the Cape of Good Hope. This has resulted in shipping costs skyrocketing by up to 250 percent[1] and transit times increasing by 7 to 8 days. While re-routing of shipping mitigates threats emanating from Houthis attacks in Red Sea, this situation has increased prices for energy and other commodities, as well as disrupted the supply chain. Shutting of Tesla’s production in Germany is one such example.
Major shipping companies, including the oil tanker group Frontline (FRO.OL), oil major BP (BP.L), and Hapag Lloyd, are circumventing the Red Sea and sending their ships around Africa via the Cape of Good Hope. This has added weeks to voyages and increased both the cost and time required to reach their destinations. The cost of a 40-foot container from China to Europe has surged to $4,000, and the number of containers passing through the Red Sea declined from 500,000 to 200,000 in December. These shipment delays have contributed to the decline in world trade.
Moreover, Houthis attacks have heightened the risks for vessels approaching the Suez Canal. Oil prices have surged to $80 per barrel, exacerbating the economic impact of disruptions to international trade. Shipping disruptions and increased fuel prices may reignite inflation, reminiscent of the peaks experienced during the COVID-19 pandemic and the Russian invasion of Ukraine in February 2022.
With growing hostility, U.S. has alleged Iran for facilitating the Houthis attack in the Red Sea and has made a coalition through Operation Prosperity Guardian in order to employ warships against the attacks, including its own Arleigh Burke-class guided-missile destroyers to provide protection to merchant ships. Houthis have successfully applied classical asymmetric warfare using cheap munition against selected targets while inflicting a heavy cost to warships to neutralize Kamikaze drones. According to the Pentagon, each munition used to shoot down Houthi missiles costs between $1 million and $4.3 million.
The U.S. intervention has incited regional and global response. China has linked Israel’s assault on the besieged Palestinian enclave of Gaza to tensions in the Red Sea and called on all relevant parties to avoid further escalation of conflict. However, despite these diplomatic efforts, a Chinese-owned and operated oil tanker, MV Huang, was still targeted by Houthi anti-ship ballistic missiles. In response to the recent wave of attacks, India has deployed guided missile destroyers (INS Kochi and INS Kolkata) to maintain a deterrent presence, while Pakistan has increased its monitoring of the Arabian Sea and has voiced concerns that the recent attacks on vessels in the Red Sea have led shipping companies to escalate their insurance costs, directly affecting their businesses.
It is pertinent to reiterate that maritime commerce plays a pivotal role in connecting the world. Such attacks are potent in every aspect. Containers and shipments are crucial to globalization, akin to the importance of eighteen-wheelers to the United States. Any disruption in global trade can ultimately stagnate the world economy. Tensions and poor decisions in the Red Sea can disrupt the machinery of globalization. Nations never benefit from prolonged wars, so it is imperative to understand that the humanitarian crisis in Gaza could bolster militias against Israel. Immediate resolution of the crisis is essential to ending the humanitarian crisis in Gaza and preventing further deterioration of the world economy.
Leave a Reply