Suez Crisis II

Hopes for an end to the Red Sea shipping crisis were dashed following Sunday’s latest skirmish. Iran’s Alborz warship yesterday sailed through the Bab El-Mandeb strait in response to the US Navy’s destruction of Houthi boats. Backed by Iran, the rebel group controlling vast swathes of Yemen’s coastline began attacking commercial shipping vessels last month. Originally claiming to target only Israeli or Israel-bound ships, Houthi aggression has swiftly grown broader. The group’s recent launch of two ballistic missiles against a Liberian-registered ship demonstrated military capabilities far exceeding ordinary piracy. It has spooked major shipping companies and charterers into suspending operations in the region. 

ECONOMIC RELIANCE ON GLOBAL SHIPPING

The physical delivery of goods remains vital for the world economy. Co-author of “Dead in the Water”, Matthew Campbell, describes shipping as responsible for “virtually every product the modern world desires.” It accounts for “over 80 percent of all worldwide trade in physical merchandise.” Houthi actions jeopardise this trade by increasing risks for vessels traversing Yemeni waters to pass through the Suez Canal. One third of global cargo ships use this corridor and it is responsible for almost 12 percent of global commerce. Recent events highlight the route’s vulnerability and the capacity of so-called “rogue states” to choke global trade. It also provides a bellwether for US foreign policy. Will the country seek resolution through negotiation or force? 

The US has already made a limited military commitment in the form of Operation Prosperity Guardian. The multinational coalition includes several northern European countries, Greece, Australia and regional player Bahrain. Its fleets will patrol the area and provide any necessary assistance to commercial vessels. The US navy came to the aid of the Maersk Hangzhou in the most recent Houthi attack on New Year’s Eve. 

INFLATIONARY RISKS OF RE-ROUTING 

Maersk had only just restarted operations in the region but is now pausing all cargo movement through the Red Sea once again. Decisions like this come at a significant cost. Campbell describes the Gulf of Aden off Yemen as “the sole route between that body of water and the Red Sea – and thus the Suez”. Therefore, “transiting the Gulf is the only way for ships to travel from Europe to Asia, or vice versa, without making a detour of several thousand nautical miles around South Africa.” 

Shipping freight these extra miles is considerably more expensive and this cost is borne by the exporters. In turn, those exporters will pass on the extra costs to consumers. Maersk is the world’s second largest container shipping company with over 100,000 customers. Its decision impacts various industries and affects prices of everything from consumer goods to machinery to pharmaceuticals. Businesses have reported a 250 percent increase in shipping rates over the last two weeks. Guy Platten, secretary general of the International Chamber of Shipping, warned this impact on prices may be seen later in January.    

Oil is another product affected by this supply disruption. I spoke to a senior shipbroker in the oil industry to understand the impact. He had just brokered a deal for BP to send a shipment through Suez. Soon afterwards, the company changed its policy and was forced to re-negotiate a route around southern Africa. This doubled BP’s costs. The shipbroker told me that the “market is massively driven by sentiment. Owners will immediately get their backs up a bit more and the market can quite easily turn, even for voyages that aren’t particularly relevant to what’s going on.” 

There are plenty of ship owners still willing to go through Suez but they demand higher rates for the trip. This is partly to cover their own increased insurance premiums and armed guards, but also driven by a general sentiment that shipping is now more dangerous. Oil prices have thus far remained relatively stable, driven by a dampening of demand expectations in 2024. But its price rose 2% in the first trading session of the new year with Brent crude settling at $78.77 a barrel. 

OLD THREAT, NOVEL CAPABILITIES 

This is by no means the first time the shipping industry has had to contend with physical threats. Somali piracy was a constant menace after the country’s civil war. It peaked in 2011 with companies introducing armed guards thereafter. These pirates were more organised than is sometimes recognised. They were funded by sophisticated criminal enterprises and were often experienced combat soldiers. But the Houthis’ threat is far greater. Iranian support means their military arsenal is considerable. The novel use of ballistic missiles demonstrates this. 

Somali pirates were motivated by money. The Houthis are religiously and politically motivated, sharing the Iranian government’s Shia Islamist politics and vehement opposition to Israel. Its attacks are a response to Israeli actions in Gaza following Hamas’ October 7th incursions. The Economist’s Shashank Joshi described Iran as trying to “put pressure on Israel without getting into an all-out conflict with Israel.” It is sowing disruption rather than operating through diplomatic channels to achieve its ends.  

MILITARY RESPONSE 

In the days of its more muscular foreign policy, the US may have responded with force to these provocations. In a recent interview with Fox News, former Secretary of the Navy Kenneth Braithwaite advocated this approach. Braithwaite bemoaned that the US had not had a carrier strike group in the region since 2021. He said the Iranians would only respect military strength and continue to create regional instability in its absence. “Armies win wars but navies prevent wars”, was his final admonishment of American failure to invest more in its navy. 

The US army may now become involved in a limited capacity. The Times reports that a US-led coalition is preparing to launch military strikes on Houthi bases if their actions continue. However, the US will want to avoid any direct military confrontation with Iran and be dragged into a wider conflict. After its initial unequivocal support for Israel, the Biden administration is now pressuring Netanyahu’s government to wrap up intense operations in Gaza. The prospect of offering this as a fig leaf to appease Iran, as well its allies in the region, will increase those efforts. 

WARS AND INFLATION ARE UNPOPULAR 

In an election year, the Biden administration is conscious of avoiding any inflationary shocks. US voters have also tired of foreign military adventure. A Brookings poll from last year reported that 40% favour isolationism and 30% want stability. Any military involvement beyond airstrikes would alienate these camps. Secretary of State Antony Blinken will be instructed to seek a swift resolution. 

Iranian backed Houthis show so-called “rogue states” can reciprocate sanctions in a less subtle manner. Its economy has suffered but its leaders’ aims are not subject to democratic approval. Iran retains the support of the world’s second largest economy in China and has a formidable military. The US will need to resolve the crisis through negotiation to avoid an expensive and unpopular conflict. As the administration pivots on its Ukraine strategy, now seeking to bring Zelensky to the negotiating table, it raises a question: Which other nations might test the limits of America’s military resolve? 

 

0Shares

One Comment

  1. Juggernaut

    A very interesting read. It’s a topic that isn’t getting enough attention in the media at the moment, but has very serious consequences. Looking forward to more in the future!

Leave a Reply

Your email address will not be published. Required fields are marked *