Us Ship Red Sea Attacks: Us Navy Houthi Rebels Drone War Facts

Red Sea Shipping Attacks: Red Sea War Impact on the US Economy

Let's discuss today the Red Sea attacks of 2023 and how the Red Sea conflict has strong economic impacts and its importance in global trade. The Suez Canal is a critical junction connecting the Red and Mediterranean Seas. It was opened in 1869, before which the Red Sea was mainly used to transport coffee, spices, and enslaved people. Many transformations were evident after the Suez Canal was built; in 2023, about 24,000 ships used this canal to transport goods. The importance of the Red Sea and Suez Canal is quite evident. Still, now the route has turned out to be quite dangerous as recently Yemen attacked a US ship, and this is not the first attack of 2023.

Key Highlights 

  • It makes up 10% of the Global trade by volume trade done by the Red Sea. It includes 20% of the world's shipping containers, 10% of the world's oil shipped, and 8% of natural gas shipped through this route.

  • Due to increasing attacks on the Red Sea route, shipping companies are diverting their vessels from this route.

  • The Houthi fighters in Yemen are threatening the ships by conducting missile and drone attacks.

  • Any destruction of the Red Sea route would affect 12% of global trade; however, the impact on the US economy and the consumer could be less.

Red Sea Shipping Attacks: Who Is Attacking Ships in the Red Sea?

If any ship wants to sail between Europe and East Asia, the only way is to go either through the Suez Canal, which passes through the Red Sea, or take a long route around Africa, which adds thousands of miles and two weeks to the journey. 

Because Yemen attacked a US ship recently, many companies have announced that they would stop sailing through the Red Sea that goes through Yemen. Instead of going through this quickest route between Europe and Asia, they have now rerouted to go around the Cape of Good Hope, which is a longer journey but is safer due to the Red Sea attacks. This is not the first attack, as in recent weeks, dozens of Houthi rebels attacked ships, and four only happened on December 18.

Due to the Hamas-Israel conflict, the Houthi forces in Yemen have started attacking ships in the Red Sea. In the attack of October 7 by Hamas on Israel and Israeli military response, the Houthis have declared they intend to target those traffic that are connected to Israel or are bound for Israel. The attacks in the Red Sea in 2023 have increased. Moreover, the frequency of Houthi attacks using direct attack drones and anti-ship missiles has also increased.

Why Is the Red Sea a Global Trade Chokepoint?

These attacks on shipping, mainly in the Red Sea, threaten the global economy. Any ship that passes through this canal to or from the Indian Ocean has to go through the strait of Bab al Mandad and the Red Sea. It is the quickest route between Asia and Europe and is particularly important for transporting oil and liquified natural gas. If you look at the data from freight analytics firm Vortexa, about 9 million barrels of oil per day were shipped through the Suez Canal in the first half of 2023. 

If you look at the two crucial Chokepoints in the Red Sea, the first is the Suez Canal, which connects the Mediterranean Sea and the Red Sea, and the strait of Bad el Mandad is the second important chokepoint that connects the Red Sea and the Gulf of Aden. It is also an essential link between the Mediterranean Sea and the Indian Ocean, situated between Yemen, Djibouti, and Eritrea.

In 2021, the Swiss canal was closed for about six days, blocking dozens of containers around this canal. The current situation is similar to this 2021 incident, which has caused shipping costs to rise sharply.

Why Does the Red Sea Have Heavy Shipping Traffic?

The Red Sea is one of the world's most densely packed shipping channels. It is a significant waterway from Europe to Asia and East Africa. About 12% of global trade passes through the Red Sea, including 30% of international container traffic. Billions of dollars of goods are traded through the Red Sea every year, which means any delay could affect oil prices and impact the availability of goods to consumers.  

  • Many prominent shipping companies like Maersk, Hapag-Llyod, and MNC have decided to suspend their operations in Red Sea routes and have diverted around the Cape of Good Hope. This diversion would result in an increase in the journey time by up to two weeks. It also means all the oil and gas shipments are halted through the Red Sea.

  • The traffic in the Red Sea is because it is the shortest route that connects the Mediterranean Sea and the Red Sea and directly connects Europe to Asia. Due to its shortest route, it was also a cost-effective route for shipping companies. 

  • The Suez Canal is an important root, especially in the global oil trade. The northbound traffic of the Suez Canal is mainly dominated by European importers, who trade around 3.9 million barrels daily. Southbound traffic is dominated by Russia, which transports crude oil to Asian countries at 2.9 million barrels per day. On the other hand, Qatar, the United States, and Russia are the most important shippers of Liquid natural gas that use this canal. 

  • If any shipping company diverts its route to Cape of Good Hope, it will increase its voyage days by 145% or an extra 22 days on a round trip basis. Due to drought in the Panama Canal, no ship could sail through it, and the importance of the Suez Canal increased until the water filled it first.

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How Do Red Sea Shipping Attacks Affect the US Economy?

However, 12% of global trade passes through the Red Sea, and it will majorly impact the European and Asian economies; however, the destruction of any shipping around the Arabian Peninsula would not significantly impact the US economy. This was said by Mark Hopkins, an economist at Moody's Analytics.

If you look at the crude and oil prices, they will only be determined by the time for how much shipping destruction is caused by these attacks. It means if the attacks take more than a couple of weeks, there would be no significant changes in the prices. Also, there is no panic buying in refiners. Similar producers like Brazil and Norway could substitute delays in oil and crude oil shipment from the Middle East. The US shipments to Asia could have short-term delays if cargo is rerouted to the Cape of Good Hope. It implies that the US ship attack in the Red Sea or the Red Sea attacks in 2023 would not significantly impact the US economy.

Bottom Line

The recent attacks on the Red Sea, particularly by Houthi Forces in Yemen, have created a major impact on the world's busiest shipping routes. Due to this increasing number of attacks on the Red Sea, the major shipping company has decided to avoid the Red Sea route and go for a longer but safer route like a Cape of Good Hope. This may result in longer journeys and delays, but it will benefit by diversifying the supply chain and alternative shipping options that mitigate the risk in the Red Sea. It also highlights the need for strategic measures to ensure the Global supply chain remains secure and there are no disruptions in this interconnected network for trade. 

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Douglas Walltrip 26 Dec, 2023

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