Introduction
In the last two months there has been a lot of talk about Houthi but let’s understand, first of all, who they are, what they want and, in particular, what impacts will be trigged by Yemenis on global economy, on companies and on their strategic choices.
It is undeniable that free commerce cannot exist inescapably from the free flow of goods by sea; yet, the crisis is exposing the “great fragmentation” of the known world order.
After about three months of attacks perpetrated by the Houthi of Yemen, in between piracy and maritime terrorism, aimed to hit the commercial routes and the shipping trade traceable to Israel and U.S.A. transiting between Bab El-Mandeb and the Southern Red Sea, neither a multilateral initiative nor an agreed policy position on the modus operandi against this situation has yet to be raised.
Meanwhile, the Yemenite movement is damaging the global economy. But who trains the Houthi, or, as they have defined themselves since 2011 “Ansar Allah”, i.e. “God’s partisans”? The answer is quite predictable, Iran, the Country of the Ayatollah.
Yemen: global crises
Since 2014 one talks about the Yemen civil war, when the neighboring country Saudi Arabia militarily intervened in order to nip the tentative “coup d’état” of Northern Zaidi Scythians, the Houthis, in the capital Sana’a in the bud.
Perhaps convinced to face a very short- lasting war, Saudi Arabia, at the head of a coalition of Gulf countries, tried to oppose the Houthi seizure of power and, as an answer, Iran started to army these militarized fringes, that, in turn, started to hit sensible and power plant Saudi targets, forcing the Saudi kingdom itself to enter into a negotiation with the Houthis to reach a ceasefire.
And so, here we are today, with Israel attacking the Gaza Strip – the smallest of the Palestinian territories that has been de facto governed directly by Hamas since 2007 – searching out Hamas, after their military attack on Israel on October, the 7th.
Why do the Houthi represents a problem?
For the countries of the Arabian Peninsula, the Yemenis rebels represent a true security threat. Europe and U.S.A have always faced the matter with a localized approach, as the Yemenite problem was far from the geopolitical vison.
For sure it is easier and simpler to depict Yemen as an extension of the Iran’s expansionistic drives because the Houthi are very autonomous, militarized and follow their targets.
The Red Sea crisis, whose beginning can be identified with the start of the Hamas -Israeli war on October the 7th, for sure represents a point in favor of Tehran, but turns the spotlight on the failure of the Yemenite Government with reference to the social and economic policies, and gives the role of referents to the “God’s partisans” (Houthi) for the Palestinian cause in anti-Israeli, anti-American and anti-Western terms.
The Houthi can, accordingly, lean towards the coalition of Gulf countries from a position of strength, rising as a leader among the Iranian partners and, despite the Anglo-American raids, it seems difficult to hypothesize that the Houthi will stop.
Overcoming the international separations
Although the crisis of the global free flow of goods in the Red Sea is well known, ONU has not yet been able to put together an adequate and, first of all, unified answer.
Indeed, the resolution approved on January 10th, 2024, deliberated with the aim to impose to Houthi to immediately cease every form of hostility in the Red Sea and release the ship – the Galaxy Leader – and its crew taken hostage on November 19, 2023. Such deliberation was approved thanks to the abstention of Russia and China, both are countries of the U.N. Security Council with veto right. For sure, it is not a good signal of international cohesion.
And in Europe?
Distinctions immediately emerged within the European Union: Italy and France decided not to take part in the Prosperity Guardian, the mission promoted by the U.S.A. and United Kingdom, preferring the National Command of Paris, with its naval fleets joined in the European Union Naval Force Operation ATALANTA mission. The only exclusion was Spain, who decided not to take part.
While Brussels analyses the Houthi issue, whose attacks represent only one side of the global crisis triggered by this act of piracy, the keystone could be found in the mission EMASOH-ARGENOR, based in Abu Dhabi and promoted by some European countries in the immediate aftermath of the attacks driven by Iran on the oil-tankers transiting in Hurmuz, in the Gulf of Oman, in 2019.
Beyond the distinctions among European countries, the shipping companies have, for a long time, been organized by contacting private Security Agencies.
Different positions of foreign policy also in the countries of the Gulf
Even if the European internal divisions are not new for the Pentagon, and they are not so concerned, the same cannot be said amid the positions expressed by the Monarchies of the Arab countries, Bahrein included: where the V° American fleet is stationed.
Riad expressed “great attention” for the American attack, the EUA underlined, in addition, the Houthi threat, Qatar expressly reproached Washington to avoid armed retaliation, and lastly, Oman, involved through a mediation with Yemen, expressly condemned the British-American retaliation.
The picture frames a common enemy, but different foreign policy positions, despite the commonality and the vision on maritime security.
The strategic relevance of the Red Sea
The Houthi threat was necessary to recentralize every discussion regarding the relevance of free navigation in the Red Sea.
The Red Sea has always been the natural communication route between the Indian Ocean and the Mediterranean Sea and has become an international neuralgic hub; the concurrence of the Russia invasion in Ukraine and the creeping and endemic rivalry between U.S.A. and China, have eroded a significant part of the Western predominance.
Indeed, the Middle East has not been inactive, obtaining, first of all, port concessions, already existing and under construction infrastructures and airports, in the Horn of Africa and Yemen.
Naturally, all this process was accompanied hand in hand by a strong militarization of the Red Sea region, at the expense of global security, actually reviving never subsided conflicts.
The Red Sea reminds us of how fundamental the security of shipping at global level is: in this strip of sea flows all sorts of goods, from cereal to metal, from oil to electronic appliances.
The divisions that instead fragment the global world distance any shared solution; the Houthi, in the meantime, raise the bar from their strategic observation post, the one that until recently was identified as “the outlying Yemen”, famous for its capital, Sana’s, considered as UNESCO heritage for its architecture.
The new data of the Red Sea crisis
The transportation costs of a typical container, from Shanghai to Genova, have more than quadrupled within a month and a half and the crisis is spreading in parts of the world even further away. Also the cost of the transportation from Shanghai to Los Angeles towards the Indian Ocean have more than doubled.
In mid-January shipping traffic in Bab El-Mandeb strait was reduced by more than a half (-55%), impacting on the Suez Canal (-40%). Currently, Egypt risks losing revenues of 4 billion USD, that are equal to one per cent of its GDP.
While, in the Italian ports the crisis currently seems to be over. After a first nosedive from mid-December 2023 (that in mid-January 2024 reached a peak of -25%) the number of the containers that reached the 6 major Italian ports returned to normal levels, levelling out at -5% in the last week.
From the end of November 2023 until January 25, 2024, the transportation cost of a typical container from Shanghai to Genova was more the quadrupled, from 1.440 USD to 6.400 USD. This is a real consequence of the risk that the commercial ships that navigate through the Bab El-Mandeb Strait from or to the Suez Canal are becoming a target of the attacks of Houthi rebels in Yemen. In the last few years, this has not been the first time that global maritime trade is facing a crisis of similar magnitude. In 2021, with the return of trade at the end of the worst wave of the Covid-19 pandemic, the cost of global transportation of one typical container was over 10.000 USD, before decreasing. Currently, however, the crisis has had a faster development than in 2021 when it took roughly one year to reach the peak and 7 months in order to go over the 6.000 USD level compared to the current month and a half. And even if the crisis is still a regional crisis, there are signals that it is having consequences also in far-reaching geographical areas of the world. The shipping cost of a container from Shanghai to Los Angeles, i.e. across the Pacific Ocean, has more than doubled.
Since the last week of January 2024 there have been signals that the crisis is stabilizing or, perhaps it would be better to say, becoming chronic. The flows of large containers, oil tankers or tankers in the Bab El-Mandeb and Suez Canals is no longer declining but it is stabilizing respectively at -55% and -40% compared to the pre-crisis ones. The reason why the collapse of traffic from the Suez Canal is slightly less significant is that a part of the containers, oil tankers or tankers that go through the Canal stop at the ports in the Red Sea, i.e. Saudi Jeddah. For Egypt, anyway, a reduction of traffic of such a magnitude from Suez should entail a loss of roughly 4 billion USD, 1% of the Egyptian GDP, but above all one of the most important USD inflows, a strong currency “life jacket” for a country that last year was forced to use half of the State fiscal revenues to pay debt interests.
Based on the most recent data, the reduction of traffic in the 6 main Italian ports (Genova, Venezia, Trieste, Gioia Tauro, Augusta and Livorno), that all together represent 54% of the Italian maritime imports and 40% of the exports, seems to have been significantly recovered. Against a spike that blocked at least 20% at the onset of this crisis, in the last two weeks the flow has been recovered and seems to stand at around -5%. The scenario is continually evolving and will be carefully monitored over time.
In addition to the shock on international maritime transportation, new concerns on a possible spike of energy prices have emerged because the region is one of the most important oil exporters towards markets around the world. Based on S&P Global, 24% of the ships redirected from the Suez Canal from December 15, 2023, onwards were oil tankers for crude oil. The bulk carriers represented roughly 35% and the containers another 24%. Roughly 90% of the oil that navigates towards Bab El-Mandeb comes from the Persian Gulf and is intended for Europe and Africa. The remaining 10% is made up of oil from the Horn of Africa. The Red Sea is a transit route for 80% of Russian oil intended for the Asian market and 8% of global trade of natural liquid gas as well.
An increase in oil prices, a key element of fuel for vehicles, can entail an increase in prices at the pomp and an increase in inflation as well.
In this scenario, Europe is the country that risks losing the most due to the increase in energy prices: endeavoring to move away from Russian dependence, it has relied on liquefied gas and most of the liquefied gas moving through Bab El-Mandeb and the Suez Canal is headed for Europe.
Is sea freight the only option? Rogers says that rail freight transportation should require instead to “pass through Russia”, which is subject to economic sanctions due to the invasion of Ukraine, while “road transportation from the Gulf to Israeli could only compensate roughly 3% of sea freights”.
The impacts for companies and consumers
The outcomes are delivery surcharges for some services and delayed arrivals of some products and components. This entails the runoff of inventories and even the halt of production lines. Until now, the discontinuity has not hit the value chains of companies as the pandemic Covid-19 did, but is it inevitable that value chains are influenced – with the runoff of inventories until the halt of production line – due to the hijacking of ships in the Red Sea. According to Chris Rogers, Head of Supply Chain Research at S&P Global Market Intelligence, consumer goods, that potentially are subject to new inflationary pressures, “will be impacted on the most” because the current situation occurred “during the off-peak sailing season”.
Both the furniture giant Ikea and the British retailer Next have warned that the delivery of products could be delayed if the interruptions of the shipments should continue. Tesla has suspended the production in the only European electric cars plant due to the interruption of the procurements.
But the scenario for shipping companies could be heterogeneous: while in the near term an increase of the profitability can be foreseen thanks to either an increase of the tariffs and the usage of the excess capacity on the alternative longer route circumnavigating the Cape of Good Hope, at the end of the hostility the tariffs of the containers could decrease and the excess capacity will go back to representing an unprofitable use of working capital.
In the near term, also the air transport operators could also benefit because companies that usually ship goods by sea try to ensure faster delivery for selected commodities and with a size suitable for cargo shipping.
Many retail companies are at the forefront of the crisis, in particular the ones whose business model is based on the circulation of goods from Asian producers to consumers in the rest of the world because longer shipping time can entail delays in stocktaking and higher costs. For fashion retailers the search for alternative routes or means entails the increase of transportation costs that will hit both the profit margin – eroding them – and the sales prices – increasing them.
The impact on the technological industry could be lower because while the big size articles (televisions, machinery, and vehicles) are transported by sea, the smaller ones are usually sent by airfreight. So, if, on one hand, a severe disruption of car deliveries could entail a reduced demand for automotive semi-conductors’ suppliers, on the other, technological companies supporting defense and the information security could take advantage of the increase of the conflicts in the region.
Conclusions
The Red Sea crisis – makes itself noted for the centrality of the sea freight in the freedom of shipping transportation – triggered the emergence of the lack of multilateral initiatives and, therefore, a great fragmentation of international order characterized by an increase of both the erosion of the influence of the West and of the militarization that, in turn, caused the increase of the confrontations.
While managing the current situation, with an eye to the near future, companies, can no longer not take into consideration the geopolitical risks in their strategic choices. They are reevaluating where they intend to start future partnerships and how to protect themselves while being aware that not all the places in the world, and not all the cross- border partnerships, are the same taking also into consideration the approval of the Due-Diligence Directive (or Supply Chain Directive) that imposes big companies (and their partners in the commercial supply chain) to take on greater responsibilities regarding human rights and sustainability matters.
