Why the Houthi attacks in the Red Sea are worrisome

A Houthi fighter stands on the Galaxy Leader cargo ship in the Red Sea. (Reuters)
A Houthi fighter stands on the Galaxy Leader cargo ship in the Red Sea. (Reuters)

Summary

  • The snowballing crisis in the Red Sea is threatening to disrupt an already fragile global supply chain, as shippers begin to avoid one of the world’s busiest trade routes

The snowballing crisis in the Red Sea is threatening to disrupt an already fragile global supply chain, as shippers begin to avoid one of the world’s busiest trade routes. Mint looks at the crisis, efforts taken to contain it, and its implication for India and the world.

What is happening in the Red Sea?

The Yemen-based and Iran-backed Houthi militants have fired over 100 drones and missiles at ships belonging to over 35 countries plying the Red Sea. They are doing so ostensibly in support of the Palestinian cause. Many missiles have been intercepted by the navies of Western nations present in the region, but a few have slipped through, damaging the vessels. Many large container shipping firms and BP, one of the world’s largest oil producers, have suspended voyages through the narrow waterway—one of the busiest trade routes that connects Europe and Asia through the Suez Canal.

What are its implications?

More than 20,000 ships pass through the Red Sea and Suez Canal annually. They carry as much as 30% of the world’s container volume, 9% of oil, 6% of gas and account for 12% of global sea-borne trade. Any disruption to this trade route would naturally have significant implications. In the last one week, more than 300 vessels have opted to take a 6,000 nautical mile detour around Africa. This means an additional 12 days of transit time. The crisis, if not contained quickly, will disrupt the global supply chain and hurt the world economy. It is already sending the cost of transportation up significantly.

What about freight rates?

In the last three weeks, spot freight rates between Asia and Europe have soared 40%. Insurance premiums have also shot up. Crude prices have risen too. Experts warn this is just the start. As ships take the longer route around Africa, it will soak up a lot more shipping capacity and create container mismatch as more containers are leaving China than those returning to the country.

How is the world reacting to this crisis?

The US is leading an effort to put in place a multilateral task force, Operation Prosperity Guardian, to patrol the area and create a safe corridor for the ships. Over 10 countries have agreed to participate in it. India, not part of this task force yet, has sent naval vessels to protect ships that are bound for India. Saudi Arabia, which is in talks with the Houthis to end the civil war in Yemen, is also being leaned on to end this crisis. Concerted efforts are needed as the Houthis have a huge stockpile of missiles.

How does this crisis impact India?

India is already facing a brunt of the crisis. This weekend, an India-flagged crude carrier MV Sai Baba was hit by a drone in Southern Red Sea. On Saturday, a Liberian-flagged vessel carrying crude to India was hit just outside India’s exclusive Economic Zone in the Arabian Sea. About 65% of India’s crude imports pass through the Suez Canal and 50% of its exports use this artificial waterway that connects the Red Sea and the Mediterranean Sea. India is exploring ways to protect its supply chain.

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