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The Ongoing Red Sea Crisis: Into Uncertainty

While the war between Israel and Gaza rages on, the Houthi rebels in Yemen have launched attacks on the Red Sea, which continue to create tension and uncertainty in the region.

Cargo ships leaving the Red Sea-Suez Canal route following the ongoing attacks by Houthi rebels in Yemen have reached epic numbers. Numerous container ships have been impacted by the incidents in the Red Sea, leading many international companies to alter their routes away from the Red Sea.

Why is the area important?

The Suez Canal is a narrow strait and an important transit point, accommodating about 12% of world trade and about 30% of global container traffic. Every day, about 30% of the world’s containers pass through the Suez Canal.

An example from the recent past is that in March 2021, the 400-meter-long and 59-meter-wide giant ship Evergiven, was stuck in the canal disrupting two-way navigation traffic for 6 days. The Suez Canal Authority initially incurred a daily loss of $14 million, which later escalated to $28 million per day. Within a week, the total loss reached approximately $200 million. This resulted in a twofold increase in transportation, insurance, production costs, and fuel prices, causing a global surge in oil and gas prices.

What potential outcomes could result from the increasing Houthi attacks and escalating tension in the area?

The persistence of the Suez crisis may result in heightened trade costs as global shipping is rerouted around Africa. Moreover, there is a risk that the crisis could escalate military tensions in the Middle East, bringing about uncertainties as the situation develops. Some steps are being taken to ensure security and normalize the process.

A U.S.-led military force is to be deployed to the region to secure trade. Steps have been taken to safeguard shipping in the face of its actions in the Red Sea. Following the announcement of the establishment of a multinational mission in the area, Maersk announced that it is preparing to resume its activities in the Red Sea and the Gulf of Aden and linked its decision to the security measures to be taken in the area.

However, there is a great deal of uncertainty as to how the tensions in the region will take shape and what steps will be taken in this process.

Rising tensions in the area could become a major threat to the global economy. Concerns about the future in areas such as global oil and energy trade have also increased.

It is difficult to predict the course of the process as of early 2024. It seems that we will continue to witness the reflections of all these processes on maritime transportation and their effects on the supply chain soon.

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