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Since mid-November 2023, the Yemen-based, Iran-backed Houthi rebel group has attacked dozens of commercial ships in the Red Sea, with no signs of slowing down. An exodus of shipping companies from the region now threatens to scuttle supply chains and increase consumer prices just as global inflation begins to ebb. The United States has announced an international security initiative to protect commercial vessels and has launched strikes on Houthi sites in Yemen. Some experts worry the response could catalyze a wider regional conflict.
Why are the Houthis attacking ships in the Red Sea?
The Houthis say their strikes are directed at boats with Israeli interests, and that the attacks will continue until Israel ends its war in Gaza. But in practice, the Houthis have targeted ships indiscriminately, experts say. Shipping is notoriously opaque, with vessel ownership and operation, crew nationality, and flag of registry often differing. Fearing attacks, major shippers including global leader A.P. Møller-Mærsk have announced plans to avoid the Red Sea and the Suez Canal—diverting some $200 billion in trade.
How could Houthi attacks affect the global economy?
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The Red Sea is one of the most important arteries in the global shipping system, with one-third of all container traffic flowing through it. Any sustained disruption in trade there could send a ripple effect of higher costs throughout the world economy. This is particularly true of energy: 12 percent of seaborne oil and 8 percent of liquified natural gas (LNG) transit the Suez Canal.
Avoiding the Red Sea means abandoning one of the most common global shipping routes from Asia to Europe. Indeed, 40 percent of Asia-Europe trade normally transits the sea. Ships shunning the Red Sea will have to instead sail around the Horn of Africa, which can cost $1 million more round trip in additional fuel costs. Still, more than one hundred fifty commercial ships have chosen the longer route since November. On the other hand, insurance premiums for ships using the Red Sea have shot up nearly tenfold since the attacks began.
Some shipping companies are already passing down these expenses. France’s CMA CGM, the world’s second-largest shipper by market share, recently announced that it would double its rates for shipping from Asia to Europe.
The Houthi strikes are only the latest in a series of disruptions that have highlighted the interconnected nature of shipping and its crucial role in the global economy. In 2019, Iran attacked several oil tankers in the Strait of Hormuz, leading many freight companies to opt for the Cape of Good Hope route. In 2021, a ship ran aground in the Suez Canal, holding up $10 billion in goods each of the six days the canal was clogged. Most recently, a drought in Panama has compounded shipping woes as the country’s namesake canal, through which 5 percent of global trade flows, is operating at a fraction of its usual capacity.
But as of early January 2024, these trials have yet to produce major price increases for consumers, especially in energy markets. The price of brent crude, a U.S. benchmark, remains lower than the October average, though it has flared after major strikes. Europe is likely to feel economic stress sooner than the United States, CFR Fellow Zongyuan Zoe Liu says, because the Red Sea is the only route to the Suez Canal, which links some of the largest European consumers of tradable goods to their Asian suppliers.
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What can be done?
To ensure freedom of navigation, long a primary goal of U.S. foreign policy, the United States has spearheaded a twenty-country naval task force to protect commercial ships in the Red Sea and the neighboring Gulf of Aden, and deployed aircraft carriers to the region. The coalition approach was also applied during the 2019 spate of attacks. However, that effort included regional powers such as Saudi Arabia and the United Arab Emirates, who experts say are unlikely to join the operation today.
Skeptics of this strategy have argued that a defensive posture alone is unlikely to deter Houthi attacks. The Houthis are using relatively inexpensive weaponry, including drones, to wreak costly damage, and naval vessels cannot escort every commercial ship. As a result, “it’s harder now than it’s ever been” to protect commercial vessels in the Red Sea, says CFR Military Fellow John P. Barrientos, who has commanded ships in the region.
On January 11, the United States and United Kingdom bombed more than sixty Houthi targets in Yemen. U.S. President Joe Biden said the strikes will continue “as necessary” to protect the free flow of international commerce. Prior to the attack, Pentagon officials and independent analysts cited a track record of deterrence established by previous strikes. After Houthi rebels attacked commercial and U.S. military vessels in 2016, Washington responded with strikes of its own, and the Houthis stood down. “Disrupting or destroying the Houthis’ ability to disrupt shipping is hardly akin to the overambitious [U.S.] policies of the past aimed at regime change and remaking of societies,” writes CFR Senior Fellow Steven A. Cook. “Rather, it’s a move to protect a vital national interest.”
But such strikes could raise the risk of regional conflict, including with Iran, which has sent its own warship into the sea. The Houthis openly relish the idea of war with the United States, and unlike in 2016, they are no longer mired in daily conflict with their northern neighbor Saudi Arabia—though experts say U.S. strikes could also reignite Yemen’s civil war. Every option the West could take therefore has “serious downsides,” the Brookings Institution’s Bruce Jones writes. “Tensions and bad choices abound in the Red Sea—but they are also a harbinger of tougher choices and turbulent waters ahead.”
Will Merrow and Michael Bricknell created the maps for this In Brief.