By Jana al-Masry | 2024-01-23

Egypt's economy is one of the hardest hit by the Iran-backed Houthis' continuing attacks on commercial vessels in the Red Sea, which have had negative economic consequences for most of the world, including Yemen.

The attacks have slowed Suez Canal traffic, as major shipping companies reroute their vessels away from the Red Sea and take the longer route around the Cape of Good Hope to avoid harassment.

According to the International Monetary Fund (IMF), cargo transport activity through the Suez Canal decreased by 35% in the second week of January compared to the same period last year.

During the same period, the route around the Cape of Good Hope, at the southernmost tip of Africa, saw a 67.5% increase in shipping traffic, it said.

Between November 18 and mid-January, more than 25 commercial vessels have been attacked while sailing in the southern Red Sea and the Gulf of Aden.

In a December 17 statement, the Suez Canal Authority said "55 vessels have been diverted to the Cape of Good Hope route since November 19."

By mid-January that number was expected to grow as an increasing number of major shipping companies announced their vessels would avoid the Red Sea.

The Houthis' attacks have continued to endanger international shipping in the key maritime corridor, through which up to 12% of global trade passes.

The attacks prompted the United States to form the multinational Operation Prosperity Guardian to step up Red Sea security.

The US and UK militaries, with support from other nations, have targeted Houthi sites and missiles with retaliatory strikes in order to degrade the capabilities of the Iran-backed group.

Negative repercussions

As the current crisis drags on, the negative repercussions for the Egyptian economy will increase, Al-Sharq Center for Regional and Strategic Studies researcher Sami Gheit told Al-Fassel.

The negative trend could be reversed "if commercial vessels start sailing safely in the region again," he said.

Egypt knows the cost of wars and their repercussions very well, Gheit added.

Other than the revenue from the Suez Canal, Egypt's tourism revenue has declined as many visitors fear traveling to the country amid the shaky security conditions, he said.

"The revenue from the Suez Canal has decreased by 40% in the first two weeks of January compared to the same period last year," said Egyptian sea captain Mohammed Magdy, who works for a Suez-based shipping company.

This year, 544 vessels have passed through the canal over this time period, compared to the 777 that transited last year, he told Al-Fassel.

The manmade waterway -- which officially opened in 1869 -- is crucial for Egypt, earning it $9.4 billion in transit fees in the fiscal year 2022/23.

The Suez Canal Authority is in constant communication with international shipping companies to keep them up to date on any developments, Magdy said.

The authority hopes to encourage them to continue passing through the canal by facilitating procedures and through other measures, he added.

Operations to process transiting vessels in the Suez Canal have been scaled back but are otherwise proceeding as usual, he said, adding that operations will return to full capacity when the situation calms down.

Rising prices

The current crisis in the Red Sea is "a new blow directed at the global economy following the series of blows that began with the coronavirus pandemic and the Russian war on Ukraine," financial analyst Mahmoud Sultan told Al-Fassel.

"This area is vital for global navigation and the transport of all kinds of goods, especially oil and gas," said Sultan, who is a Cairo University professor.

If the shipping traffic avoids the Suez Canal and instead goes around the Cape of Good Hope, "at least 15 more days of travel will be added to commercial shipping times," he noted.

Insurance costs have risen, which will inevitably increase the prices of all goods, he said.

The Suez Canal Authority has approved an increase of 5% to 15% in transit fees, Sultan said. But the decision, made in October, is not related to the more recent developments in the key waterway.