Shipping in the Red and Arabian Seas is under attack from Houthi rebels, and unless it stops soon, economies that seem to be turning marginally for the better could see their position worsen through rising prices.
As background, Houthis operating out of Yemen emerged in the 1990s as a cultural revivalist movement for the Zaydi sect of Islam, which, as of 2022, was practiced by approximately 35% of the Yemeni population; they became frustrated with the growing prominence of Saudi-Arabian Salafi Islam in the country which they felt, repressed their cultural and religious heritage.
In November 2009, they crossed into Saudi Arabia amid a rebellion against Yemen’s government. The Saudis and UAE launched airstrikes in 2015 against Houthi targets in Yemen. Tensions rose further in 2017 when a Houthi rocket landed near the airport in the Saudi capital, Riyadh, and the Saudis claimed it was an Iranian missile. More attacks followed in 2022 and beyond.
The Houthi conflict with the Saudi-backed Yemeni government has seen the rebels become closely allied with Iran, from whom they receive support. Nevertheless, they have their own locally defined interests and, in particular, support the Palestinian cause. In attacking what they believe are Israeli-related ships, they hope to expand backing for their own situation while also sabotaging the Saudi-Israel normalisation of relations.
The Suez Canal and the Red Sea are key transit routes for shippers seeking to save on time, fuel, and expense when moving goods; they are the only waterways allowing direct passage between Europe and Asia. Roughly $1tn of goods, products and natural resources pass through the Red Sea and Suez Canal each year, accounting for about 15% of global sea trade. Around 80% of all global trade by volume travels by sea, or about 50% by value.
Both the Houthis and Iranians know this and are using it to their advantage. The alternative, sailing around the coast of Africa, can add anywhere from ten days to three weeks, and 6000 miles, to the journey, along with hundreds of thousands of pounds in costs. Indeed, the price of sending a standard container of goods from China to northern Europe has spiked from about $2000 to more than $5250.
For Iran, the situation gives them a disruptive role without directly firing a single shot as the Houthis do their dirty work by proxy. For shippers and the Western military, it’s a headache.
Shipping is avoiding the Suez and the Red Sea, and cargo volume through both is now at half its previous level. War risk insurance prices have risen and are now at 1% of the ship’s value, up from 0.7% previously, with rates likely to move higher still. The risk of attack is particularly high for vessels registered in the UK and the US, including dependent flags, as well as those connected to Australia, the Netherlands, Bahrain and Canada.
The matter is being made worse by rising fees for transiting the Suez Canal that rose by up to 15% from 15 January, with the highest increases for, among other things, container ships and oil tankers.
Western navies, primarily the US and UK at present, have a problem. The Houthis aren’t backing down in the face of multiple strikes by the West against key targets. Further, they know that cost is on their side. Each of their explosive drones costs them around £16,000. In comparison, a single Sea Viper missile used to shoot drones down is in the region of £1m.
The Saudis want to extricate themselves from their activity in Yemen’s civil war – especially as some of the Saudi population sides with the Houthis. Beyond that, it’s neither practical nor economic for the West to keep up its activity ad infinitum. If the situation doesn’t de-escalate, more targeted action against the Houthis by the West is likely, and Western economies will see higher inflation and delays in goods.