The Crisis in the Red Sea and Its Impact on Trade Routes

by Sebastien GOULARD

As of 11 January, 2024, the United States and the United Kingdom initiated strikes against Houthi positions in Yemen. This military action is a response to the terrorist threat to the maritime route through the Red Sea, with Houthi or Ansar Allah terrorists targeting merchant ships connecting Asia to Europe. Yemen has been torn apart by civil war since 2014, pitting the internationally recognized Presidential Leadership Council against the Houthi armed, political, and theological organization (a branch of Shia Islam). Controlling the northwest of the country, the Houthis receive support from Iran.

Until the autumn of 2023, this highly deadly conflict, which has caused over 250,000 deaths primarily from famine, had minimal repercussions on global trade. The situation changed with Hamas’ terrorist attacks in Israel and Israel’s response in Gaza. The Houthis decided to disrupt traffic through the Red Sea in support of Hamas, targeting Western ships or those heading to Israeli ports. Through these actions, they aim to garner support from Islamist terrorist groups, continue receiving arms from Iran, and consolidate their positions in Yemen’s internal conflict.

The Houthis conducted around 100 drone and missile attacks on at least 10 ships in the Red Sea. On 27 January, 2024, a Houthi-launched missile hit a fuel tanker, causing a fire on board.

An Abandoned Route

These attacks have forced some carriers to seek alternative routes. The commercial route through the Suez Canal and the Red Sea is one of the busiest trade routes, with nearly 30% of global container traffic passing through annually. According to European Commission Vice President Valdis Dombrovskis, maritime traffic in the Red Sea decreased by 22% in January 2024. Maritime giants like Maersk, Hapag-Lloyd, CMA-CGM, and MSC have chosen to favour other routes.

For ship owners opting for the Red Sea, maritime transport costs may still rise because of increased insurance costs and the tripling of container prices in recent weeks.

The Cape of Good Hope Route

An alternative, albeit longer but more secure passage, is the Cape of Good Hope route circumventing Africa. The route from Singapore to Rotterdam is nearly 40% longer when passing through the Cape of Good Hope rather than the Suez Canal, resulting in extended delivery times and costs.

Currently, the sudden changes caused by the crisis mean that South African ports have not yet benefitted from this traffic. The ports of Durban and Cape Town are struggling to adapt, and the waiting time for berths continues to increase. Other African ports could also benefit from this new route with additional investments to modernize their infrastructure, depending on the duration of the crisis. If the Red Sea security crisis is temporary, these investments may prove unnecessary.

Reviving the Intercontinental Landbridge

In this context, another route, this time by rail, could see new developments. According to SCMP, Chinese companies are turning to the “intercontinental landbridge”, connecting China to Europe. While Chinese ships have not yet been targeted by Houthi attacks, they have been affected by the global slowdown in maritime trade, posing a risk to production chains in China and worldwide. The “intercontinental landbridge”, developed as part of the Chinese Belt and Road Initiative, cannot completely replace maritime trade as it has limited capacity, but could be used for high-value-added products. However, this option is not without its flaws, and convincing European industries to use it is crucial to prevent trains from returning empty to China. The geopolitical crisis involving Russia’s invasion of Ukraine has dampened European enthusiasm for the landbridge, as exporting to China through Russia is not a favoured option.

Exploring Other Routes

The abandonment of the Suez Canal could lead to diversions to less utilized alternatives, such as the Caspian route connecting Central Asia to Azerbaijan, Georgia and Turkey. Although longer and more complex because of its rail, maritime, and (again) rail segments, this route could gain popularity if the crisis in the Red Sea persists.

Consequences for the India-Middle East-Europe Corridor (IMEC)

One of the main consequences is the temporary abandonment of the India-Middle East-Europe corridor. Announced during the G20 summit in New Delhi in September 2023, this corridor aimed to facilitate exchanges between India and Europe through the Arabian Peninsula and Israel. Today, this corridor cannot be implemented primarily because the maritime route connecting the Indian subcontinent to the Arabian Peninsula has become more dangerous. Western naval powers, previously combatting piracy in this area, have shifted to the Red Sea, requiring Pakistan and India to launch new patrols to counter piracy in the Arabian Sea.

To establish the IMEC, optimal security conditions are essential between the Indian subcontinent and the Arabian Peninsula. However, beyond the Houthi threat, active mainly in the Red Sea and less so in the Arabian Sea, the geopolitical context is hindering IMEC’s establishment. The crisis in Israel and Gaza has halted—or, at least, delayed—the normalization of relations between Israel and Arab countries, especially Saudi Arabia. These relationships are crucial for the structured development of the IMEC. The IMEC has not been entirely abandoned, but its realization will require time and effort to resolve the Israeli-Palestinian conflict. If the United Arab Emirates, a major IMEC stop, maintains strong relations with Tel Aviv, Riyadh has stated that normalization with Israel requires guarantees regarding the possible creation of a Palestinian state. In the current atmosphere of distrust between Israel and Jordan, it is challenging to envision rail lines connecting Israeli ports to Jordanian cities.

European Ports

Unfortunately, European powers around the Mediterranean, still minimally engaged in resolving crises in the Red Sea and the broader Middle East, could become collateral victims of carrier disinterest in the Suez Canal. Carriers bypassing Africa might prefer European ports on the Atlantic and North Sea coasts.

The Red Sea crisis, intertwined with the Israeli-Palestinian conflict, disrupts global trade, impacting one of the major maritime routes. In the absence of a solution to the decade-long conflict in Yemen, Red Sea maritime traffic could be enduringly affected by Houthi attacks, fostering the emergence of longer and more costly routes.

In this crisis context, it is crucial for all powers in the Middle East, including Israel, and those external to the region, to collaborate on a regional integration project like the IMEC.