Yemen’s Houthi Rebels Attack On Ships Poses Threat To Trade Through Red Sea

Yemen’s Houthi rebels have carried out hijackings, missile strikes, and drone attacks on ships, leading Danish shipping and logistics company AP Moller-Maersk and German shipping and container transportation firm Hapag-Lloyd to temporarily suspend shipments via the Red Sea.

The announcements made on Friday by AP Moller-Maersk and Hapag-Lloyd indicate that large companies are now recognizing the security risks in the Red Sea region. However, there could be potential effects on global oil markets and the cost of energy for consumers. The extent of the disruption will depend on how major international actors respond to the impending crisis, according to experts.

According to a statement from Maersk, their decision to pause shipments through the Red Sea is based on their worries about the increasingly dangerous security situation in the southern Red Sea and Gulf of Aden. The recent attacks by missiles and drones on commercial ships pose a major risk to the safety and security of the crew members onboard, the statement mentioned.

Maersk and Hapag-Lloyd jointly control around 25% of the global shipping fleet. The increased instability in the Red Sea can be attributed to the conflict between Israel and Gaza, which started on October 7. Over the past 10 weeks, during which Israel has been conducting airstrikes on Gaza, the Houthi rebels have launched attacks on at least eight ships in the Bab el-Mandeb strait. This strait separates Eritrea and Djibouti from the Arabian Peninsula.

With a width of just 29km (18 miles) at its narrowest point, the Bab el-Mandeb strait plays a crucial role in international trade. Approximately 10% of the world’s seaborne crude oil passes through this strait, making any disruptions a global concern.

The Houthis have been attacking ships that have some ownership connection to Israelis or that transport goods to Israel through the Red Sea. In November, they claimed to have seized the Galaxy Leader cargo ship, which they believed to be Israeli-owned. However, Israel stated that the ship was actually owned by a British company and operated by a Japanese team, with no Israelis on board. The ship was originally bound for India.

The rebels, who have held significant territory in Yemen since 2014, have vowed to persist with these attacks until there is a comprehensive truce in Gaza. Their objective is to increase the consequences for the US and other nations that provide assistance to Israel in different capacities.

These acts of aggression also indicate that the Houthis are a formidable presence in Yemen and a significant member of the alliance known as the “axis of resistance.” This alliance includes Hamas in Gaza, Hezbollah in Lebanon, the Syrian government, as well as several groups in Syria and Iraq that are supported by Iran. The Houthis are demonstrating their growing boldness and determination in this group.

There is limited evidence to indicate that the Houthi attacks will cease in the near future. This raises concerns about the impact on the oil market. According to Colby Connelly, a senior analyst at Energy Intelligence, an energy information company based in Washington, the attacks have had a noticeable but not significant impact on the oil market.

With the continuation of these attacks, the markets have increasingly paid attention. As a result, the prices of crude oil have risen towards the end of the week, reaching levels higher than those observed in the previous days. This is mainly due to the fact that these attacks show no signs of stopping unless a more forceful effort is made to put an end to them, as explained by Colby Connelly.

As tensions escalate, it is uncertain how this crisis in the Red Sea will unfold. According to Paul Sullivan, a non-resident senior fellow at the Atlantic Council’s Global Energy Center, if the Bab el-Mandeb Strait is limited in terms of oil traffic due to regional tensions, there is a high possibility that the price of oil to certain locations will increase. This is primarily because of the added premiums on insurance and the products themselves, as a result of the crisis and potential conflict.

Considering the current situation, it is uncertain, but not likely, that such a scenario will occur. However, in a region of escalating tensions, unexpected outcomes are possible. If the situation deteriorates to the extent that various cargoes need to be redirected around Africa, it could result in significant changes to cargo contracts, including those involving oil and liquefied natural gas (LNG). As a consequence, prices would face upward pressure. Although the recent decline in oil prices may provide some relief, it is not expected to last long, as stated by Sullivan.

One of the complexities of this situation is the unpredictable nature of Houthi missile and drone attacks. These attacks do not adhere to a clear pattern, making it challenging to anticipate their next move. As Colby Connelly stated, the Houthis’ actions are increasingly making it difficult to predict their future actions.

If the Houthis were to attempt to blockade the Bab el-Mandeb Strait, it would have significant ramifications. Colby Connelly explained that the consequences would involve increased shipping insurance risks, expenses related to alternative routes, and the potential for disruptions in supply chains, among other factors. However, he also expressed doubt regarding the Houthis’ capability to carry out such an action. Furthermore, he emphasized that any attempt to do so would inevitably provoke a swift and forceful response.

The disruptive actions of the Houthis in the Red Sea have the potential to draw increased scrutiny and pressure from various actors such as China, India, Gulf Cooperation Council states, Iran, and Western powers.

China opposes any disruption to global trade, including in strategic routes such as the Bab el-Mandeb Strait and the Suez Canal, due to the negative impacts it would have on its economy. As a result, there is a possibility that China, at its own request, might exert pressure on the Houthis to reduce their aggressive actions in the Red Sea. Amin Mohseni, a senior economics lecturer at American University, shared this perspective with the media house.

It is worth mentioning that several countries, including the US, UK, China, Germany, Spain, Italy, France, Saudi Arabia, and Japan, already have military bases in Djibouti, which serve to constrain the Houthis’ aggressive actions in the Red Sea over the long term. Additionally, there is interest from both Russia and India in establishing their own military bases in the region, further reinforcing the efforts to limit the influence of the Houthis.

Sullivan believes that certain global players may increase their presence in the region to safeguard uninterrupted shipping from Yemeni actors. He suggests that China and possibly India could deploy more assets to protect their oil interests, and NATO could strengthen task forces to ensure the freedom and security of navigation. Sullivan also expects the US to become more involved as tensions escalate in the region.

Despite the ongoing conflict between Israel and Gaza, with a high number of Palestinian casualties exceeding 18,700, the Houthis are likely to remain committed to influencing the situation as much as they can. The ongoing violence in Gaza is expected to result in a sustained high level of risk in the Red Sea region. As a result, both the shipping industry and the global community should be prepared for new economic challenges to emerge. (IPA Service)