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Business Markets

Red Sea attacks choke global trade as regional tensions grow

US relists Houthis as terrorists; Davos forum mulls economic fallout



Top executives of major corporations like Maersk and Aramco flagged a bleaker outlook on how the Red Sea crisis will impact global trade. (Picture used for illustrative purposes)
Image Credit: Reuters

Dubai: Attacks by Houthi militants on ships plying the Red Sea are continuing to cause what is now considered among industry experts and market watchers as the biggest disruption to global trade since the pandemic.

Top executives of major corporations flagged a bleaker outlook on how the Red Sea crisis will impact global trade. Speaking at the World Economic Forum in Davos, Vincent Clerc, CEO of Danish transport giant Maersk, said the disruption to global shipping will likely last at least a few months.

Echoing similar concerns at the forum, the CEO of Saudi oil giant Aramco Amin Nasser said that prolonged attacks by the Houthis on ships would lead to a shortage of tankers due to longer voyages and a supply delay – hurting prospects of the sector even further.

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Diversion of sea routes

The latest comments come as a wave of missile and drone strikes on ships in the Red Sea continue to force many companies to re-direct their cargoes around Africa.

Maersk and other large shipping lines have instructed hundreds of commercial vessels to stay clear of the Red Sea, sending vessels on the longer route around Africa in response to attacks on shipping by Houthi militants. The alternative route around South Africa’s Cape of Good Hope adds 10-14 days to the journey.

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“So for us this will mean longer transit times and probably disruptions of the supply chain for a few months at least, hopefully shorter, but it could also be longer because it’s so unpredictable how this situation is actually developing,” said Clerc.

Doubling freight rates

Freight rates have more than doubled since early December, according to maritime consultancy Drewry’s world container index, while insurance sources say war risk insurance premiums for shipments through the Red Sea are also rising. Banking executives have said they were worried the crisis might create inflationary pressures that could ultimately delay or reverse interest rate cuts.

“If it’s in the short term, tankers might be available ...But if it’s longer term, it might be a problem,” Nasser said in an interview on the sidelines of this week’s World Economic Forum in the Swiss ski resort of Davos. “There will be a need for more tankers and they are going to have to take a longer journey”.

Aramco can bypass the Bab Al Mandab strait near Yemen, from where the Houthis launch attacks, via a pipeline connecting its eastern oil facilities with its western coast and giving it quicker access to the Suez Canal, Nasser said.

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Back on terror list

Meanwhile, the Biden administration yesterday returned the Houthi militants to a list of terrorist groups, US officials said, in the latest attempt by Washington to stem attacks on international shipping.

Officials said the ‘Specially Designated Global Terrorist’ (SDGT) designation, which hits the group with sanctions, was aimed at cutting off funding and weapons the Houthis have used to attack or hijack ships in vital Red Sea shipping lanes.

“These attacks fit the textbook definition of terrorism,” said one of three administration officials who briefed reporters ahead of the announcement on condition of anonymity.

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