BP is the latest shipping company to suspend operations in the Red Sea, joining CMA CGM, Equinor, Evergreen, Frontline, Maersk, MSC, and others as Houthi-linked attacks against vessels mount. Monday 18 December 2023 marked a stark uptick in incidents with four attacks reported in 24 hours, including the targeting of container ship MSC Clara and the Norwegian-owned Swan Atlantic tanker.
While the attacks have been largely motivated by the ongoing Israel/ Hamas war, the targeting of merchant vessels by the Houthis could also play into ongoing peace negotiations with Saudi Arabia. The Houthis may be seeking broader credibility in Yemen and increase leverage in the Saudi peace talks. Already, the recent attacks demonstrate the capacity the group has to disrupt regional shipping operations and could embolden the Houthis significantly, meaning an easy win in the proposed Oman-led talks is less likely and the threat in the Red Sea could persist for some time.
The US has announced the formation of Operation Prosperity Guardian, a joint naval operation involving up to 10 countries, to help safeguard the area. Meanwhile, the USS Dwight D. Eisenhower-led Carrier Strike Group 2 is reportedly en route to the Gulf of Aden. Although the international naval response is welcomed, insurers and operators remain nervous. Parts of Lloyds of London marine insurance market has expanded the high-risk zone in the Red Sea, while operators are choosing to re-route vessels along safer but more costly routes.
Even a temporary suspension of marine operations in the Red Sea for several weeks will have real and immediate consequences globally. We are anticipating increased freight rates, longer lead times, and associated disruptions to supply chains. With available excess capacity likely to dampen the impact compared to the 2021 Ever Given Suez Canal obstruction for example, it will come down to how long such disruptions are in place. With the holiday season upon us and global consumer demand at a high, international brands - and other global suppliers reliant on constant supplies, may feel the pressure in the New Year. Ongoing disruption in this critical maritime corridor will be an important determinant for the resilience of the global economy. The economic recovery and efforts to fight inflationary pressures off the back of the Covid-19 pandemic and Russia’s ongoing war in Ukraine have barely settled in. Another knock to global supply chains or a rise in oil and gas prices will be a major concern for world economies as we enter a new year.