Did Houthi Red Sea Attacks Affect Israel's Economy? | Israel's War on Gaza News

Tensions in the Red Sea have extended to mainland Yemen, following US- and UK-led bombardments against several sites controlled by the Houthi armed group on Thursday night.

The Houthis have carried out dozens of attacks on merchant ships linked to Israel and passing through the 30 km (20 mi) wide Bab-el-Mandeb Strait. They are demanding that Israel stop bombing Gaza and allow humanitarian aid.

A US-led coalition is trying to deter the Houthis by deploying destroyers and other military bases in the Red Sea and shooting down the Yemeni group's missiles and drones. But the Houthis are clear they have no intention of stopping until Israel ends its war, which has killed nearly 24,000 Palestinians.

Traffic through the Red Sea is down by more than 40 percent, disrupting global supply chains. Some of the world's largest shipping operators have rerouted their ships around the Cape of Good Hope at the southern tip of Africa, delaying delivery times and adding another 3,000-3,500 nautical miles (6,000 km) to their routes.

But how much has the Houthi attacks affected Israel's economy? And how do they affect global trade?

What's happening on the world's busiest sea route?

At least 26 ships have been attacked by the Houthis since the capture of an Israeli-linked Galaxy Leader ship in November.

US warships in the region have repelled several attacks by the Houthis, the latest on Wednesday when the US and UK shot down missiles and drones. The UN Security Council condemned the Houthi attacks on Wednesday.

The Red Sea connects Asia and Europe to the Mediterranean Sea through the Suez Canal. Currently, 12 per cent of the world's shipping passes through the Red Sea, with an average of about 50 ships a day, carrying between $3bn and $9bn worth of cargo. In total, the value of goods passing through the route is estimated at over a trillion dollars annually.

Are all cruise ships affected?

Container shipping seems to have been hit hard. However, data published by Reuters earlier this week showed that oil tanker routes were barely affected.

Data cited from MariTrace showed an average of 76 oil tankers were to be located in the Red Sea in December, just two less than the previous month's average, while other trackers reported a small increase over the same period.

In early January, Houthi rebels announced that a ship attempting to cross into the area would not be fired upon if it declared its right and destination in advance.

Maersk and Habakk-Lloyd reached no agreement with the rebel group.

Have these attacks undermined Israel's reputation as a safe trading partner?

In mid-December, activity in Eilat, Israel's only Red Sea port, has dropped by 85 percent since the attacks began.

While most of Israel's sea traffic comes through the Mediterranean ports of Haifa and Ashdod, Dead Sea potash exports and imports of Chinese-made cars — which account for 70 percent of Israel's EV sales — rely on Eilat.

For many carriers, the risks to the vessel and crew are significant. This week, Chinese state-owned carrier Casco, along with its subsidiary OOCL, halted shipments to Israel.

However, Brad Martin, a former US Navy captain and director of the Institute for Supply Chain Security at the RAND Corporation, cautioned against overstating the challenge before Israel.

„Disruption of Red Sea shipping, and even some shippers cutting Israeli cargo, will not bring Israel to its knees economically,” he wrote by email.

„The flow through the Mediterranean will continue unhindered. Israel is probably in a better position to absorb disruptions than most of its neighbors. However, shipping and trade will become subject to diplomatic and political activity, so economically damaging isolation could certainly occur on that front,” he said.

What will be the long-term impact?

While analysts agree that the Houthi rebels' direct impact on Israel's economy has been limited, the longer the disruption lasts, the more likely the consequences will be.

A serious vulnerability could be Israel's ambition to position itself as an exporter of liquefied natural gas (LNG), in which it has a small but growing share of the major international market.

„Before the attack (October 7), Israel was on track to become a reliable gas exporter,” said Gabriel Reid, associate director of risk consultancy S-RM.

„But the hostilities have increased the political risk of doing business in Israel and further undermined the prospect of the Eastern Mediterranean region playing a major role in global natural gas markets,” he said.

What was the effect elsewhere?

According to Clarkson Research Services Ltd., traffic through the Red Sea is currently down 44 percent from what was recorded in the first half of December, as an increasing number of ships reach the port on the long route around the Cape of Good Hope.

The obvious costs of increased fuel and manpower, this has increased insurance costs and can lead to delays as congestion at ports takes its toll.

The cost of shipping a 40-foot (12-meter) container from China to Europe is expected to increase 248 percent from $1,148 in November, according to the Drury World Container Index, which tracks shipping on eight major routes between the United States, Europe and Asia. , when the attacks began.

Depending on how shipping companies respond, Simon Heaney, Drury's senior manager of container research, told Al Jazeera that overall costs could increase anywhere from 3 to 21 percent.

Delays can also be a significant factor in developed economies as „just-in-time” manufacturing processes, where goods are delivered minutes before they are needed, struggle to adapt to disruptions.

How might this affect the global economy?

Although current demand for manufactured goods from countries such as China and India is lower than at the peak of the pandemic, any change in costs or disruption to shipping schedules is likely to bear the brunt.

However, the rise in transport costs leading to inflation — the International Monetary Fund estimated that disruption to shipping lanes during the pandemic led to a 1 percent increase in global inflation — has yet to happen, economists have suggested.