The global economy at risk due to Houthi attacks on ships in the Red Sea.

Introduction

In October, Israel was targeted by Hamas, causing a disruption in regional stability. In response, the Iran-aligned Houthi militia decided to participate in the conflict and provide support to Gaza. Their actions included targeting any ships passing through the Red Sea, which has connections to Israel. This engagement posed a significant threat to the Red Sea’s crucial water routes, which are closely linked to the Suez Canal, a vital pathway for 15% of global trade.

Drone And Missile Attacks

According to U.S. officials, the Yemeni group supported by Iran has already carried out over 100 missile and drone attacks on around twelve ships in the Red Sea. They have also issued threats to target any vessel heading towards Israel, regardless of ownership or operation.

In order to prevent encountering similar attacks, prominent energy and shipping companies such as BP and Maersk have decided to suspend their operations in the area.

This has caused significant turbulence in energy markets, leading to a surge in global oil prices and impacting various other sectors. As the Red Sea serves as a vital link between Asia and Europe for cargo ships, any disruptions in this region have far-reaching consequences worldwide.

Geography of the Red Sea

The countries that border this body of water include:

Egypt

Saudi Arabia

Yemen

Sudan

Eritrea, and Djibouti

To the south, it is connected to the Indian Ocean through the Bab el Mandeb strait and the Gulf of Aden.

In the north, you will find the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez, which leads to the Suez Canal.

This body of water also occupies a portion of the Great Rift Valley, known as the Afro-Arabian Rift Valley.

The Houthis, Iran and Saudi Arabia

The emergence of the Houthis, an Islamist political and armed movement, can be traced back to Sa’dah in northern Yemen during the 1990s. The movement derived its name from the Houthi tribe, as its founder hailed from this particular tribe.

Despite the absence of concrete evidence, it has been observed that the Iranian government has provided financial and military support to the Houthis. Consequently, the Yemeni Civil War is widely regarded as an extension of the ongoing proxy conflict between Iran and Saudi Arabia.

At present, the Houthi forces exert control over Sana’a and a significant portion of Northern Yemen. They have engaged in clashes with government forces loyal to Hadi, who receive support from Saudi Arabia. In 2018, the Houthis suffered a major setback with the loss of Aden. Since then, the Houthi coalition has experienced internal divisions and conflicts.

The Recent Attacks in Red Sea by Houthis

According to analysts, the Houthis’ recent assaults in the Red Sea are aimed at consolidating their backing within the country and bolstering their influence in the region. Surprisingly, the Houthis’ popularity has surged since they initiated these attacks.

Aligned with Iran’s “Axis of Resistance,” the Houthis have pledged to target vessels passing through the Red Sea until Israel ceases its bombardment of Gaza. Although considered Iran’s subordinate faction, the Houthis have proven capable of making significant impact on occasions.

Operation Prosperity Guardian

Operation Prosperity Guardian, a multinational security initiative in the Red Sea, was launched by the USA. Partner countries such as the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain have joined, along with others.

The initiative is coordinated by the Combined Maritime Forces, specifically Task Force 153. The Combined Maritime Forces is a multi-naval taskforce consists of 39 members which includes India and Pakistan.

Established in 2022, its primary objective is to enhance maritime security in the Red Sea, Bab el-Mandeb, and the Gulf of Aden. The role of Operation Prosperity Guardian involves an increased presence of military ships and joint patrols. While they may not escort specific vessels, they aim to provide umbrella protection to as many as possible.

Impact of Houthi attacks

Global Trade:  

The Red Sea plays a crucial role in facilitating global trade. Approximately 12% of the world’s trade flows through this vital waterway, representing a significant value in terms of goods and commodities.

Risks of military escalation in the Middle East:

As Western nations endeavor to restore stability in the Middle East, the risks of military escalation loom large. With the sudden closure of one of the world’s vital trade routes, America and its allies are intensifying their naval operations in the region. In their pursuit to ensure unhindered passage, they may even contemplate launching an offensive against the Houthis.

Impact on Egypt:

 Egypt heavily relies on revenue generated from the Suez Canal, which serves as a significant source of income. However, the country is already grappling with a financial crisis, making the situation even more precarious. On the other hand, Israel will experience relatively minimal repercussions, as only approximately 5% of its trade passes through Eilat, its Red Sea port.

Navigation: 

 Moreover, the Red Sea accounts for approximately 30% of the world’s container shipping. To gain access to this strategic sea, ships must navigate through the Bab al Mandab, a narrow strait spanning about 20 miles, bordered by Djibouti to the west and Yemen to the east.

Impact on India

According to a report by the Global Trade Research Initiative (GTRI), India heavily relies on the Bab-el-Mandeb Strait for its crude oil, LNG imports, and trade with parts of West Asia, Africa, and Europe. Any disruption to shipping through this strait could have a significant impact on India’s economy and security.

The current security concern has raised fears of increased energy costs for India, as it may have to use longer routes around the Cape of Good Hope. Additionally, the heightened risk could result in higher insurance premiums and freight rates, which would impact Indian traders.

In response to this concern, several large shipping firms, including Maersk, Mediterranean Shipping Company, Hapag-Lloyd, and CMA

CGM, have halted their operations in the region after one of the worst escalations in years.

Conclusion

An assault of this nature will undoubtedly have a profound effect on the global economy, with the expenses ultimately being borne by consumers. The repercussions will extend to stock levels, expenses, and the intricate workings of supply chains. Furthermore, if military assistance is extended to every vessel, it will significantly escalate the costs involved

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