Deepening tensions and turbulence have gripped the Middle East, caused by the War on Gaza and the emergent Iran-Israel confrontation. The security situation in the region has deteriorated, enabling other regional state and non-state actors to join the conflict. One of these prominent actors is the Yemen-based Houthi rebels, which have disrupted trade transiting the Red Sea by launching attacks on commercial vessels. Though the Houthis predicate their attacks on merchant vessels as targeting ships headed to Israel, their strikes have been more haphazard than the group’s rhetoric suggests.
In 2023 alone, the Houthis attacked U.S. Navy or commercial vessels over 190 times, mainly in the Red Sea and Gulf of Aden but also in the Arabian Sea and Indian Ocean. The Houthi campaign has put immense pressure on regional countries and global trade and logistic companies to resolve the crisis. Frequent attacks on vessels and disruptions have led to increased shipping costs, higher insurance premiums, and ship rerouting, all of which have escalated the cost of global trade.
Around the Problem
To avoid the Bab el-Mandeb Strait—the main theater for Houthi attacks—large companies have opted to send their vessels around the alternative route via the Cape of Good Hope, which increases the length of the voyage from Asia to Europe and the eastern Mediterranean by up to 11,800 nautical miles. Dry bulk carriers and container carriers have been the Houthis’ main targets due to the frequency by which they transit the Bab el-Mandeb, driving up costs for a significant range of goods and commodities. As a result of the group’s brutal attacks and forcible seizure of ships like the Galaxy Leader—a British-owned, Japanese-operated cargo ship—the world’s leading container-shipping corporations, such as Maersk, Hapag-Lloyd, and Cosco, have rerouted traffic away from the Suez Canal and instead sail around Africa.
Consequently, Maersk and Hapag-Lloyd plan to launch the Gemini Cooperation initiative on February 1, 2025, which the two container giants deem the shipping “Network of the Future.” The partnership envisions 29 mainliner services supported by 28 intraregional shuttle services to circumvent the Red Sea. The decision of two leading logistics companies to reroute their traffic away from the Red Sea suggests that the tense situation in the Red Sea may remain highly dynamic for a longer period. Maersk has set the ambitious goal of attaining a schedule reliability—the rate by which merchant ships that reach their destination point on time—of above 90 percent.
The Energy Impact
Instability in the Red Sea has also forced other Western energy companies and the Gulf’s major energy producers to seek alternative routes, namely the Cape of Good Hope, to ship mainly crude oil and liquified natural gas (LNG) to Europe. For example, about 8.7 million barrels per day (bpd) of crude and refined products took the Southern Africa route in the first five months of 2024, up nearly 3 million bpd from an average of 5.9 million bpd in 2023.
Though the United States, the United Kingdom, France, and others, have responded to the Houthi aggression, said responses have been largely ineffective and do not bode well for global trade. To complicate matters further, strong global demand for shipping services will likely continue in early 2025, even as Houthi rebels vowed to continue their fight against Israel.
The continuing disruption of global chain, violence in the Red Sea, Israel-Gaza War will further strain the global shipping industry and worsen supply chain issues. Leading shipping companies will have to weigh the danger to cargo ships and higher insurance costs with their bottom line. As a result, shipping costs in the Red Sea could become excessively expensive, particularly for oil tankers. While escalation in the Red Sea has helped the Houthi government “to consolidate its power at home, the incoming U.S. administration may take a harsher stance against the Iranian proxy to ensure the safety of major global trade routes.” Therefore, the Red Sea crisis may not have reached its climax and even darker days may be ahead.
The original piece was published by the Gulf International Forum