“Conflict is drama, and how people deal with conflict shows you the kind of people they are.” Stephen Moyer
The current Israeli-Hamas crisis is making the headlines, but a side show is also playing in the Red Sea area. Yemeni militant group Ansarullah (Friends of God) also known as Houthis is attacking commercial shipping that has significant negative economic impact. The Red Sea with narrow Bab al Mandab strait at the southern end and Suez Canal on the northern end connects the Arabian Sea to the Mediterranean Sea. It is an important peg in the global shipping network connecting Asia to Europe. It is a vital economic artery with ten percent of global shipping traffic and thirty percent of global container traffic passing through it.
Ten percent of the world’s oil and ten percent of Liquefied Natural Gas (LNG) also passes through this route. On an average day, fifty ships pass through the Suez Canal, transporting $3-9 billion worth of cargo. In addition, many ships serve local Red Sea ports on eastern (Jeddah and Yanbu) and western banks (Port Sudan, Djibouti).
Since the start of the Israeli-Hamas war, Houthis are attacking ships passing through the Red Sea with explosive-equipped Unmanned Aerial Vehicles (UAVs), Unmanned Surface Vessels (USVs) and anti-ship cruise and ballistic missiles. On November 09, Houthis helicopter-borne seizure of a merchant ship Galaxy Leader got the world’s attention. The Houthis filmed the undertaking for global attention and that sent shock waves throughout the shipping industry. Large shipping companies including Danish Maersk, German Hapag-Lloyd, French CMA CGM, Swiss Mediterranean Shipping Corporation (MSC), China’s COSCO and Taiwan’s Yang Ming announced suspension of shipping through the Red Sea. Two large oil giants British Petroleum (BP) and Shell also announced re-routing of their oil tankers avoiding Red Sea.
This security threat has forced a de-tour of shipping via Cape of Good Hope. This route increases the travel time by adding seven to fourteen days to the voyage and driving up costs from 20-40 percent. This increased travel time will affect schedules and supply chain. Shipping companies must add two additional ships to each Asia-Europe loop to maintain their schedule. Increased traffic along the Cape of Good Hope will result in congestion of ports along that route resulting in logistical challenges and delays.
Delay in oil and LNG shipping during the winter months in the northern hemisphere could significantly increase energy prices. However, this increase has not materialized due to large storage stocks of LNG in European terminals. In addition, the waters around Cape of Good Hope where Indian and Atlantic oceans meet are very rough and dangerous, and some segments are known as ‘graveyard of ships’.
The shipping costs have escalated dramatically. A single round-trip voyage from Shanghai to Rotterdam, via Cape of Good Hope incurs an additional one million dollars in fuel costs. Shipping companies are adding surcharges to cover additional costs. Security threats in the Red Sea area have increased war insurance premiums for vessels using this route. The risk premium has increased from 0.2 to 0.7 percent of the value of a ship’s cargo (a ship carrying $1 million worth of cargo through the Red Sea now pays $70,000 in war risk insurance).
The Red Sea crisis has come at the worst time when there are already problems with the Panama Canal shipping route. The canal area has experienced severe drought this summer forcing the Panama Canal Authority to restrict shipping traffic. Now, only twenty ships (the numbers are even much lower for Very Large Gas Carriers – VLGCs) are allowed per day compared to thirty-six before restrictions were put in place resulting in long queues of ships.
It forced shipping companies to divert to the Suez Canal and Cape of Good Hope routes. The long queues at the Panama Canal have added to the costs. Companies can skip the queue by bidding for the slot at auction. The average cost of transiting the Panama Canal has been $900,000. In August 2023, a Liquefied Petroleum Gas (LPG) tanker paid $2.4 million for the transit slot and in November, a shipping company paid a staggering $4 million for the slot at the auction.
The threat posed by the current attacks is particularly challenging to counter despite the presence of powerful navies in the region. At the start of the current crisis, the United States sent two aircraft carrier strike groups to the region. The Dwight Eisenhower carrier group is stationed in Gulf of Aden and Gerald Ford in Eastern Mediterranean. The main purpose was deterrence of Iran and a signal to Tehran to avoid expanding the war. However, such a massive show of force against foes like Houthis shows weakness rather than projecting strength.
According to the Department of Defense, the Houthis have conducted over one hundred drone and ballistic missile attacks targeting cargo vessels since October 7. U.S. Navy destroyers have shot down about fifty drones and multiple missiles in the Red Sea. The U.S. has used multiple interceptors of its layered naval air defense system to tackle the threat that includes Evolved Sea Sparrow Missile – ESSM (targets less than 5 nautical miles), air burst rounds of 5-inch gun of the ship (targets less than 10 nautical miles) and Standard Missile-2(SM-2), Block IV (targets 90 or 130 nautical miles). ESSM costs $1.8 million per shot and SM-2 $2.1 million.
The Houthi’s Iranian made one way attack drone costs about $2,000. The cost of a larger Shahed-136 drone is estimated at $20,000. In the current crisis, a French frigate used Aster-15 surface-to-air missile costing €1 million to shoot down Shahed-type drone costing $20,000. France’s chief of defense staff, General Thierry Burkhard, summed up this cost dilemma despite the successful interception by stating that “when you kill a Shahed with an Aster, it’s really the Shahed that has killed the Aster.” The U.S. navy is pondering over the cost issue and research in this area has been put on fast track.
A careful analysis of Houthis attacks in Red Sea gives an interesting picture and provides a window to analyze Iranian strategy. The most interesting fact is that only container ships are being targeted and tanker ships carrying crude oil, petroleum products and LNG are passing through the Red Sea with no dramatic shift. Iran has been under international sanctions for decades and it has developed a sophisticated system of transporting oil bypassing normal shipping and financial institutions. One strategy is using Iraqi oil infrastructure that is in close geographic proximity to the Iranian oil fields in Khuzestan and Iraqi oil is transported to Europe via the Red Sea route. We do not know all the details of this system, but we can be sure that a sizable portion of Iranian oil mixed up with Iraqi oil is passing through the Red Sea.
In 2021, thirty percent of the tanker ships that were passing through the Suez Canal were carrying Russian oil from the Russian ports to China and India. In the aftermath of the Russian-Ukrainian war and western sanctions on Russia, oil and gas exports have been shifted from Europe to Asia. In 2023, seventy percent of the southbound oil shipment traffic passing through Suez Canal is carrying Russian oil and despite all the sensation about Red Sea shipping risks there is no evidence that Russia has diverted its tankers to another route. Qatari LNG exports to Europe also use the same route and Qatar hosts Hamas political leadership on its soil and enjoys good relations with Iran since fellow Sunni sheikdoms ostracized Qatar in 2017.
Houthi attacks are very calibrated, and they are attacking only container ships. In addition, there has been no major damage to any ship nor any casualty. This suggests that Iranians are fine tuning Houthis attacks. There are credible reports that Iranian handlers are based in Yemen and directly guiding the Houthis. An Iranian spy vessel was operating in Red Sea area likely providing Houthis with intelligence about ships.
This ship fearing being added to the target list moved out of the area when the U.S. attacked Houthi anti-ship assets in Yemen. Houthi’s first successful hijacking of a ship paid more dividends and they tried to pursue this strategy. However, U.S. correctly analyzed this threat and sent a powerful signal when in another hijacking attempt, three boats of Houthi fighters were sunk by U.S. ships killing ten fighters.
Houthi’s attacks on shipping in Red Sea are reckless and they are targeting all commercial ships. A drone attack was made on a ship near the Indian coast that was bringing oil from Saudi Arabia to India. This ship was owned by Japan, operated by a Dutch company, and flying a Liberian flag. Houthis also attacked a ship taking cargo from Saudi Arabia to Pakistan.
This ship was owned by a company of Italian shipping magnate Gianluigi Aponte and headquartered in Switzerland. In response to these incidents, Indian and Pakistani navies have moved ships to patrol these waters. United States climbed one step up on the escalation ladder and carried limited attacks on Houthi drone and missile assets in Yemen to convey the message.
Global trade is a complex business and crisis can be devastating for one actor but can bring a windfall of profit for the other. Concerns about the safety of the Red Sea route has prompted European countries to buy oil from United States where ships can bring as much oil that U.S. can export through the safe sea lanes of Atlantic Ocean in a two-week round-trip journey with no extra costs or risks. It is no surprise that U.S. oil exports have jumped 35% from 3.9 million barrels per day to 5.2 million barrels per day due to this crisis.
Information needs to be shared with the region’s population that Houthis action has very minimal impact on Israel (only five percent of Israeli trade is through the Red Sea port of Eilat) but causing enormous economic damage to the region. The first is the devastating impact on Yemen’s economy. Ninety percent of Yemen’s imports, especially vital food imports come from its Red Sea port of Hodeida controlled by Houthis and the first to suffer are Yemenis. Egypt’s main source of cash is transit fee from the Suez Canal and reduction of ships passing through the canal has immediate impact on Egypt’s fragile economy. War ravaged Sudan is another economic casualty and more dangerously tribal militias operating in Port Sudan area may take a cue from Houthis.
If central authority weakens due to intense clashes between Sudanese Armed Forces (SAF) under military dictator General Abdul Fattah al Burhan and Rapid Support Forces (RSF), a powerful militia headed by General Muhammad Hamdan Dagalo then these tribal militias will move in to try to control the lucrative port. Land-locked Ethiopia with a population of 120 million depends on the port of Djibouti for its imports and exports and facing economic impact from the crisis. China has heavily invested in the Red Sea area and Horn of Africa and a sizable portion of its imports and exports use Suez Canal (sixty percent of Chinese exports to Europe pass through Suez Canal).
Saudi Arabia has recently expanded the use of its Red Sea ports and the current crisis will have impact on its economy, but it is limited (East-west pipeline of the kingdom mitigates the risks by bypassing both chokeholds of strait of Hormuz in Persian Gulf and Bab al Mandab in Gulf of Aden). More concerning is the impact on the ambitious Neom project of the Vision 2030 that is anchored on the northern Red Sea coast of Saudi Arabia.
It is important that Iran restrain Houthis otherwise there is a clear and present danger of the fire spreading that will also engulf Houthis and Iran. The Houthi’s opponents in Yemen are already presenting their case for support to confront Houthis and even Iran’s longtime friends like India are furious. Houthis are not simply Iranian pawns but are shrewdly using the current crisis for increasing their bargaining position in ongoing negotiations with Saudi Arabia and more importantly for consolidating domestic power base. Houthis support in Yemen has been declining in the last few years due to prolonged civil war, economic crisis in areas controlled by Houthis and label of working as an Iranian proxy.
They are using pro-Palestinian sentiments to recruit more young men and there are already indications on the ground that Houthis are concentrating their forces around the strategic Ma’arib governorate where Houthi offensive was halted when ceasefire was concluded in the spring of 2022. Yemen could be rest assured that not even a single Yemeni will be fighting the Israelis, but the flower of their youth will be cannon fodder for a brutal civil war that has already seen 350’000 Yemenis dead from direct and indirect causes and will likely end up in division of Yemen along North-South fault line.
The situation in the Red Sea is a stark reminder of the fragility of global supply chains and the ripple effect of regional conflicts on international trade. The lesson of the conflicts of the last two decades is that there are limits to power. Even the most powerful countries cannot enforce their will on the others and even the weakest adversary has at least a vote in the conflict. In the Red Sea theatre, the richest of the rich and the weakest of the weak are playing their roles. Rich regional and international countries have engaged in transactional relationships with the poor countries of the region focusing mainly on security. This has forced the weak countries to take sides that has resulted in deepening of divisions and aggravated militarization of the region.
Non-state actors taking advantage of this situation have increased their leverage. The revolution in business model is being replicated in the conflict arena. Uber is the world’s largest taxi service but does not own a single car or employ a single driver. Houthis don’t own a single naval ship, but they have been able to disrupt a crucial shipping lane jeopardizing trade worth billions of dollars. A naval task force of 39 countries possessing the most sophisticated and expensive naval assets is not able to ensure safe shipping.
We need a broader and longer view of conflict management. An inclusive approach where countries with stakes in peace and stability and common interests are brought together despite differences. Existing mechanisms need to be strengthened to encourage cooperation on vital issues despite differences. This means bringing allies and adversaries together. There are several multilateral military, economic and political organizations operating in the Red Sea area including International Naval Task Force – 153, Intergovernmental Authority on Development (IGAD) Task Force on the Red Sea, the African Union’s High Level Implementation Panel (AUHIP), and the Council of Arab and African Coastal States of the Red Sea and the Gulf of Aden later renamed Red Sea Council. These organizations were created to serve the interests of dominant players and geared towards control rather than a meaningful dialogue about the region.
African Union’s mechanisms for peace and security management have paid dividends despite enormous challenges. Qatar and Oman have played an important mediating role in many recent conflicts. Ownership by African and Middle Eastern stake holders of Red Sea is essential, and an inclusive model rather than an exclusive club approach may allay fears of the countries.
Saudi Arabia and Iran share the most responsibility. Their mutual hostility and use of proxies in sectarian wars devastated many societies with large scale bloodshed of Muslims in this fratricidal conflict. Recent reproachment between the two countries with a helping hand from China and cease fire in Yemen are positive signs and this avenue should be strengthened.
A two-pronged approach with one covering the front yard where U.S. navy is patrolling the waters to keep commercial shipping safe while in the backroom China convincing Iran and Saudi Arabia to keep the détente. Iran is asked to keep Houthis on a tight leash and de-escalate while Saudis are encouraged to stay the course and not contribute towards escalation.
Iran has achieved its goals, and its long-term interests are not served by widening the conflict. However, recent reckless moves by Iran by not restraining Houthis and launching missile attacks in Syria, Iraq and Pakistan is earning them hostility from a wide range of countries. Iran should consider lowering the temperature as they risk unintended escalation due to miscalculation by Houthis.
China’s economic stakes are much higher than any other country. China’s long-term interest is securing heavy investment in Suez Canal region and short-term interest especially in view of upcoming Chinese New Year on 10 February. Chinese factories are shut down for a week for the new year holidays when 300 million migrant Chinese workers head home. Normally, all export orders are shipped out before the holiday season begins. This factor is prompting China to actively work to de-escalate but not publicly. If this approach works, considering the calculations by Iran and China, then we may see a marked reduction in Houthi activity of interference with commercial traffic in the next 2-3 weeks. Safe commercial shipping in the Red Sea is a challenge as ‘states have both conflicting objectives and a universal goal of maintaining freedom of navigation’. We have a recent example of successful multilateral cooperation in anti-piracy operations off the coast of Somalia. European Union, U.S. China, South Korea, Turkey, Gulf countries and even Iran participated in anti-piracy operations in Operation Atalanta as it served the common interest of protection of vital commercial sea lanes.
“Those who love peace must learn to organize as effectively as those who love war.” Martin Luther King Jr.
Notes
• Red Sea Dynamics. Africa Report, 2020. This nine-part series is the most comprehensive review of Red Sea problems.
https://www.theafricareport.com/in-depth/red-sea-dynamics/
• Final Report and Recommendations of the Senior Study Group on Peace and Security in the Red Sea Arena, October 29, 2020
• Elisabeth Braw. The Red Sea Crisis Is About to Ruin Christmas Gifts. 18 December 2023
https://foreignpolicy.com/2023/12/18/red-sea-suez-canal-shipping-houthis-christmas-gifts/
• Nick Childs. Global implications of the shipping attacks in the Red Sea. 19 December 2023
