Red Sea attacks disrupt global shipping: Coalition forming to tackle threat

Recent attacks by Yemen’s Iran-aligned Houthi militants on ships in the Red Sea have triggered significant disruptions in maritime trade, prompting urgent efforts by the US to establish a coalition to address the escalating threat. The Houthi group claimed responsibility for a drone attack on two cargo vessels on Monday, part of a series of strikes it attributes to Israel’s actions in the Gaza Strip.

US mobilises coalition in response

US Defence Secretary Lloyd Austin, during his visit to Israel, revealed that Washington is actively working to build a coalition to counter the Houthi threat. Defence ministers from the region and beyond are set to engage in virtual talks on the matter, with Norway offering naval officers, and other NATO states expressing readiness to consider support.

Rerouting and disruptions in shipping

Approximately 15 per cent of global shipping traffic passes through the Suez Canal, making it a critical route between Europe and Asia. In response to the heightened risks, major freight firms, including MSC, are rerouting vessels around the Cape of Good Hope, causing added costs and delays. The London marine insurance market has expanded the Red Sea area deemed high risk, impacting premiums ships must pay.

Broader implications on trade and energy

The ongoing conflict between Israel and Hamas, initiated on October 7, has sent shockwaves through the region, leading to a broader potential conflict. The Red Sea attacks underscore the ability of West Asian paramilitary forces, backed by Iran, to disrupt global trade at a time of heightened tensions between Iran, the United States, and Israel.

Oil major BP temporarily halted transits through the Red Sea, while the oil tanker group Frontline announced the avoidance of the waterway, signalling a widening crisis that now includes energy shipments. Concerns over potential supply chain disruptions have led to a rise in crude oil prices.

Impact on shipping companies and supply chains

The companies diverting vessels control a substantial portion of the global container shipping market, heightening concerns about the sustainability of current supply chains. Frontline CEO Lars Barstad warned of rising war risk insurance premiums and tighter shipping supply as vessels are rerouted around Africa.

Task force considerations and geopolitical analysis

In response to the shipping attacks, discussions are underway among the United States and its allies to form a task force aimed at protecting Red Sea routes. However, Tehran, a longstanding adversary of the US and Israel, has warned against such a move. Observers note that despite the Houthi group’s claims of targeting only Israeli-affiliated vessels, their strikes have impacted ships with no such affiliations, indicating a broader geopolitical strategy.

Economic ramifications and consumer impact

The rerouting of shipping could lead to significantly slower shipments, with potential knock-on effects on prices for consumers. Analysts predict at least a week of additional sailing time for container liners, impacting the timely delivery of goods. Delays are expected to affect the supply of consumer goods, particularly ahead of the Chinese New Year, potentially driving up prices for consumers.

French food group Danone reported the diversion of most of its shipments, adding transit time. Marco Forgione, Director General at the Institute of Export and International Trade, highlighted concerns about unsellable stock and rising prices for consumers if the situation persists.

(With inputs from Reuters)