Current Situation in the Red Sea: Impact on Shipping and Supply Chains

The Red Sea faces heightened security risks due to increased geopolitical tensions. The escalation began following the outbreak of Israel’s war on Gaza on October 7, 2023. Since then, the Iran-backed Houthi rebels, who have controlled large parts of Yemen since 2014, have intensified attacks in the Red Sea and Gulf of Aden, targeting vessels they associate with Israel​​​​. These attacks are blocking a critical maritime route to the Suez Canal.

Impact on Major Shipping Lines

Several large shipping companies, like Maersk, MSC, and Hapag-Lloyd, have paused their shipments through the Red Sea. This decision reflects the growing concerns over the safety and security of their regional operations. Maersk, in particular, cited the “highly escalated security situation” as the reason for their decision​​.

Consequences for the Shipping Industry

The rising insecurity in the Red Sea poses significant threats to global shipping. The Bab el-Mandeb Strait, a narrow passage in the Red Sea, is crucial for international trade, with 10 percent of the world’s seaborne crude oil passing through it. Disruptions in this area could have far-reaching implications for global shipping and trade​​.

Economic Implications

The ongoing crisis has already impacted the oil market, increasing crude prices. Due to these attacks, analysts note a “fairly limited but not intangible” effect on oil prices. If the situation escalates further, it could significantly change shipping routes, contractual arrangements, and pricing, especially for oil and liquefied natural gas (LNG)​​.

Compounded by Panama Canal Challenges

The situation at the Red Sea is adding to the problems for global shipping companies. They were already coping with the limitations at the Panama Canal, which is still impacted by the implications of the ongoing drought. Ships have significantly longer waiting times at the Canal, which has forced shipping companies to reroute their traffic around Cape Horn. This adds considerable distance to voyages, particularly for ships traveling between the Atlantic and Pacific Oceans.

Environmental Consequences

The rerouting of shipping traffic due to these two major maritime bottlenecks has a considerable environmental impact. The additional miles translate into higher fuel consumption, increasing greenhouse gas emissions and air pollutants. Ships, primarily powered by bunker fuel, are significant contributors to the global emissions of sulfur oxides and nitrogen oxides. 

International Response

Global players like China, India, and various Western powers are likely to increase pressure on the Houthis to reduce their hostile activities in the Red Sea. The strategic significance of the Bab el-Mandeb Strait and the Suez Canal makes any disruption a global concern. Several countries, including the US, the UK, China, Germany, and others, have military bases in Djibouti, which could play a role in limiting hostile activities in the long term​​. There is also speculation that NATO might enhance its regional task forces to ensure navigation security​​.

Outlook

As the conflict in Gaza continues, the likelihood of sustained threats in the Red Sea remains high. This situation necessitates vigilance and preparedness from the shipping industry and the global community to handle emerging economic risks​​.

About the author:

Martijn Graat

Martijn Graat is Zergratran’s Head of Content. He writes about trends and innovations in supply chain and logistics, and anything related to Zergratran