Houthi attacks and Red Sea shipping crisis

The Red Sea is a 1200-mile narrow strip of water located between northeastern Africa and the Arabian Sea which separates the coast of Suez-Egypt, Sudan and Eritrea from Saudi Arabia and Yemen, connecting the Gulf of Aden with the Arabian Sea through the Bab-el-Mandeb Strait. It covers an area of 174,000 miles and is 190 miles wide and 9,974 feet deep. The name of the Red Sea is derived from the pattern of colour changes observed in its waters. It contains major mineral resources and has the world's hottest and saltiest water, which has made it one of the key maritime trade routes.

According to World Bank data, Bab el-Mandeb is a route to 30 per cent of oil supplies and 40 per cent of other goods. However, the oil and natural gas deposits have been exploited by the nations adjoining the sea. In 2023, approximately 22 per cent of the global trade passed through the Suez Canal, carrying goods and products. In addition, the Suez Canal contributes 9.4 billion dollars, which is 2.3 per cent of a country's GDP in the fiscal year 2022-23.

However, the Houthis' attacks in the Red Sea have disrupted key maritime routes, threatening global trade, energy security and environmental compliance. Participation of international actors, since 2011, increased the scope of war, and Houthis started targeting military and commercial vessels in international waters and other places, hindering peace and security in the region and around the globe.

However, a deal was signed in December 2023, involving the Houthis-controlled North and Saudi-backed Yemeni government as part of a UN-brokered agreement. The agreement is considered a special envoy for Yemen. The purpose of this deal was to lift sanctions at Sana airport and Hodeida port; make Yemen more economically open; and decrease the number of attacks. However, according to the Pentagon, the Houthis carried out more than 100 drones and missile attacks targeting merchant vessels involving more than 35 countries. These attacks induced the United States to set up a multinational naval taskforce to protect Red Sea Shipping.

The Houthis, a Muslim group that stands with the Palestinian cause, control approximately 70 per cent of Yemen. Either these attacks are meant to target the ships that are doing business with Israel and to put pressure on the players involved in the conflict, as a mark of protest against Israel that is carrying out a genocide in Gaza, or it may be a way for Houthis to strengthen their hold on power.

The Houthis have been targeting commercial and military vessels in the Red Sea since November 2023, primarily the ships of the US, the UK and Israel. It is meant to disrupt arms aid to Israel as part of efforts to prevent Israel from committing Palestinian genocide.

The Houthis' attacks impacted trade in various ways. These ways include the disruptions caused by overlapping shipping disorders. The world is facing simultaneous disruption as these attacks pose further implications for food and energy security and inflation. Moreover, the induced climate droughts, escalating attacks and the Russia-Ukraine war compounded the disruptions. The decrease in monthly transit – less than 40 per cent in the Panama Canal and the Suez Canal –underscores the magnitude of overlapping ships.

The Suez Canal enables a more direct route, with 22 per cent of global trade passing through it. However, given the risk of ship attacks, many ships reroute, opting for a longer route from Africa, impacting trade. It has been estimated that around 586 container vessels were rerouted in February 2024.

The climate-induced droughts have created an alarming situation for the Panama Canal which is experiencing low water levels. This has reduced the daily transits from an average of 36 to 22 with predictions of further reduction to 18 per day by February 2024. This also increased the demand for rail and road routes. This rerouting has also increased the distance and shifted operations for maritime cargo. The car-carrying ships have dropped to half in 2023 as compared to 2022, due to this rerouting.

Moreover, the Red Sea shipping traffic has dropped to 60 per cent since 2023, approximately falling from 90 to 36 in August 2024. This disruption increased energy prices, rising 5-10 per cent during the peak attack period in 2024. It also impacts regional imports as regional ports and trade hubs face reduced activity, thus straining the economy. These disruptions also pose environmental threats such that the rerouting of ships leads to overconsumption of fuel, thus raising carbon emissions and straining compliance with the International Maritime Organization environmental regulations of 2022. Moreover, these attacks cause further escalation, resulting in intensified humanitarian crisis.

These events pose great implications at regional and global levels. It includes 9-10 per cent global trade disruption, raising shipping costs, reducing canal revenues by up to 40 per cent and reducing canal transits to below 40 per cent in 2023. Moreover, it also has an environmental impact due to the rise in fuel usage by 30-40 per cent and increased carbon emissions. In addition, the US-UK naval coalition, China's muted response and Gulf states avoiding intervention redirect oil exports, causing economic instability. In contrast, according to a Wall of Street Journal report on October 24, Russia provides logistical support and intelligence to the Houthis in Yemen. Moreover, Iran and Russia have strengthened their military alliance and are supporting Houthis.

The Houthis' attacks on Red Sea shipping, disrupting 9-10% of global trade, have slashed Suez Canal revenue, increased shipping costs and strained global supply chains, risking inflation and shortages. These attacks, coupled with a 30-40% rise in fuel use, challenge environmental regulations and escalate geopolitical tensions, as the US-UK airstrikes counter Houthis' actions, while China remains reserved and Gulf states prioritise oil exports and diplomacy. As the EU shifts to Gulf oil, the ongoing Red Sea crisis, compounded by prior global economic shocks, threatens regional stability and global economic hegemony.