Can the Houthis Disrupt the World's Trade?

Can the Houthis Disrupt the World's Trade?

In December 2023, major shipping companies were forced to divert their ships from the Red Sea to bypass the African continent, incurring significant costs, after Yemen's Houthi group targeted ships traveling through Israeli ports in solidarity with the Palestinians. The Iran-affiliated group demanded that Israel allow humanitarian aid to reach Gaza, which has suffered more than two months of Israeli blockade and bombardment. The Yemeni group also called on Israel to end the brutal war in Gaza.

Who are the Houthis?

The Houthis are an armed group that is a sub-sect of Yemen's Shiite Muslim minority, the Zaidis. They derive their name from the name of the movement's founder, Hussein al-Houthi. The group was formed in the 1990s to fight what they saw as the corruption of then-President Ali Abdullah Saleh. The Houthis rebelled against Yemen's internationally recognized government in 2014, launching fighting that led to a civil war that has caused a devastating humanitarian crisis in the impoverished Arab country.

Today, most of Yemen's population lives in Houthi-controlled areas. In addition to Sanaa and northern Yemen, Houthi rebels control the Red Sea coast. The official government, with President Hadi, fled the country in 2015 to the Saudi capital, Riyadh. For this reason, the Houthis consider Saudi Arabia their enemy.

The Houthis declare themselves part of an Iranian-led "axis of resistance" against Israel, the US, and the rest of the West - along with Hamas and Hezbollah. Hezbollah has provided them with extensive military experience and training since 2014, according to the Center for Counterterrorism, a US research institute. The Houthis also consider Iran their ally. Iran has provided enormous material and military support.

Current Situation

To date, the Houthis have a significant military arsenal of various drones and missiles, including ballistic anti-ship missiles, which they first successfully used against ships in the Red Sea. The Houthis first launched rockets and drones at southern Israel in October, but they either failed to reach their distant targets — some 2,000 kilometers (1,240 miles) - or were intercepted by Israel and its allies. Iran, for its part, denies involvement in the Houthi attacks in the Red Sea.

But as Tel Aviv continued to refuse international calls for a cease-fire, Houthis intensified their strikes, taking advantage of their position near the Red Sea and especially near the narrow Bab-el-Mandeb Strait that connects the Gulf of Aden to the southern sea. They have captured and are holding a merchant ship in their ports and have attacked several other merchant ships carrying everything from cars to foodstuffs. The Houthis have said that ships not affiliated with Israel have nothing to worry about and will only attack ships that belong to Israel or are carrying goods to and from Israel. However, tracing the ownership of ships can be difficult, and some of the companies targeted have denied ties to Israel.

Can the Houthis Disrupt the World's Trade?

Why is this Shipping Route so Important?

According to the US Energy Information Administration, in the first half of 2023, 12% of all global seaborne trade in oil and 8% of liquefied natural gas passed through Bab-el-Mandeb. That's 8.8 million barrels of oil per day and 4.1 billion cubic feet of LNG per day. More than 17,000 ships pass through each year, some of which are bound for the Suez Canal, leading to the Mediterranean Sea and connecting Asia and the West.

Some shipping companies choose the only alternative to sea transportation — a much longer route around Africa. But this can increase costs and lengthen the journey by up to two weeks. Insurers are also raising insurance prices for ships planning to follow this route.

Can the Houthis Disrupt the World's Trade?

Who is Suffering?

  • Israel, the first direct target of the Houthis, has already felt the impact of disrupted maritime trade. Traffic through the southern port of Eilat, located in a city that is also a tourist center, has ceased, and the foreseeable future appears uncertain as the war continues.
  • Egypt, whose economy was in dire straits even before the war, could be hit hard by the slowdown in trade, in addition to lower transit fees for cargo through the Suez Canal, on which it is heavily dependent.
  • Europe and the Mediterranean countries will suffer the greatest losses if the current situation continues in the long term.

How Will this Affect Consumers?

According to Chris Rogers, Head of Supply Chain Research at S&P Global Market Intelligence, there will inevitably be an impact on supply chains due to the redirection of ships from the Red Sea. Delays in getting goods to stores can be expected, and the container ship journey will increase by at least ten days. Shipping tariffs have increased, and companies may pass these costs on to buyers. In addition, there is a high probability that the disruptions could lead to higher oil and natural gas prices. Rising energy prices, a key ingredient in automobile and jet fuel, could lead to a new rise in inflation. LNG supply disruptions will lead to higher electricity prices.

What do the Houthis Want?

In the context of the Gaza war, they want to demonstrate that they are a key member of the Iranian-led "axis of resistance" by showing their support for Hamas. In doing so, the Houthis seek international recognition as the legitimate government of Yemen.

What Response is being Prepared from Allies?

The attacks have prompted the US to launch an international naval operation to protect ships traveling the Red Sea route, joined by Britain, Canada, France, Bahrain, Norway, and Spain. The US Defense Secretary Lloyd Austin held a virtual meeting with ministers from more than 40 countries and called on other nations to contribute to the effort to secure shipping in the region.

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