By Nour Eddin Omar | 2024-02-04

The Iran-backed Houthis' attacks in the Red Sea have dealt a blow to the global economy, with countries in the Middle East -- particularly Egypt and the Gulf states -- feeling the impact the most.

"Such an outcome reveals the hypocrisy of the Houthis' claims about the causes of their attacks and incessant efforts to disrupt navigation," Qatari international affairs researcher Mahmoud Abdul Moneim told Al-Fassel.

The Gulf states, foremost Saudi Arabia and Qatar, have been directly impacted by the crisis as their oil and gas exports transit the Red Sea.

Stability in the Red Sea region is crucial to many of Saudi Arabia's Vision 2030 projects, the Carnegie Endowment for International Peace said in a November 30 report.

"Riyadh needs regional stability, maritime security, and a broad set of alliances to fulfill its economic targets, all of which are challenged as long as the Red Sea remains a military flashpoint," it said.

The Red Sea coast is a linchpin of the vision, with developers eyeing a slew of resorts that could help transform the kingdom into a tourism hot spot, AFP reported December 1.

That makes ending military operations in Yemen a central foreign policy goal for Riyadh -- a goal that the Houthis' attacks have put further out of reach.

'Most dangerous escalation'

Speaking at the World Economic Forum in Davos on January 16, Qatari prime minister Sheikh Mohammed bin Abdulrahman Al Thani said liquefied natural gas (LNG) shipments will be affected by tensions in the Red Sea, AFP reported.

He called the Red Sea crisis "the most dangerous escalation right now because it's not affecting only the region, it's affecting the global trade as well."

LNG shipments will be affected just like any other merchant shipments, he said, referring to the increasing exchanges with the Houthis that have forced many major shipping companies to reroute their vessels away from the Red Sea.

"There are alternative routes; those alternative routes are not more efficient; they're less efficient than the current route," he said.

At least five LNG vessels operated by Qatar have stopped en route to the Red Sea, Bloomberg reported January 15.

The new geopolitical conditions "will have political and economic repercussions if the crisis continues," said Faisal al-Khawaldi, a lecturer at the Jeddah-based King Abdulaziz University's Faculty of Economics and Administration.

"The currently volatile region is a meeting point of the East and West and the compulsory route of basic goods traffic, including raw materials, foods, oil and gas," he told Al-Fassel.

The repercussions of the Houthis' attacks have started to appear already, "though slightly," he said. "The rise in prices and impact on economies will gradually increase if the crisis continues."

Suez Canal disruption

Overall, between 12 and 15% of world trade -- 20,000 ships per year -- passes through the Red Sea, which provides a link between Europe and Asia.

According to the United Nations Conference on Trade and Development (UNCTAD), ships diverting from the Red Sea have led to a 42% drop in transit through the Suez Canal in the last two months.

The number of weekly container ship transits through the Suez has fallen by 67% year on year, according to UNCTAD.

Tanker traffic has dropped 18%, the transit of bulk cargo ships carrying grain and coal is down 6% and gas transport is at a standstill.

The situation is made even more dire as other global maritime trade routes also face disruption, with transit through the Black Sea severely restricted since Russia's invasion of Ukraine two years ago, sending global food prices soaring.

A drought in Central America has led to a drop in water levels in the Panama Canal, significantly reducing the amount of traffic able to cross.

"Prolonged disruptions in major trade routes would disrupt global supply chains, leading to delayed deliveries of goods, increased costs and potential inflation," UNCTAD warned.

Oil prices affect Gulf states

"The Houthis' disruption of navigation in the Red Sea has undermined Suez Canal traffic," said Ain Shams University economics professor Shaher Abdullah.

"This has forced shipping companies to take the longer route around the Horn of Africa to avoid potential risks," he told Al-Fassel. "But rerouting ships has led to an increase in shipping costs," in part due to increased fuel consumption.

"Shipping costs have increased from about $1,400 to more than $4,000 per container," he said.

"This will in turn force companies to raise their prices to compensate for such losses and will eventually affect consumers' purchasing power."

The continuation of the crisis also will affect oil prices, Abdullah noted.

"Experts expect that oil prices will surpass the $80 per barrel threshold due to higher demand, lower supply and inability to deliver on time," he said.

"This will in turn affect inflation rates and force regional countries, in particular, as well as other countries, to take urgent measures," he said.

"The current developments have ruined all plans and expectations for economies that have been reassuring this year," Abdullah noted.

"This means that global economies, together with global trade, will be dealt a severe blow if the crisis isn't resolved as soon as possible," he said.

Preserving regional security

Since the Houthis began to attack Red Sea shipping, the United States and its allies have tried to prevent tensions "through diplomacy and negotiations," said al-Khawaldi, the university lecturer.

But the Houthis' continued attacks have thwarted diplomatic efforts and ignited tensions in the region, he said.

"The Gulf region's security is governed by strategic partnerships between the Gulf states and the United States, which has committed to maintain security across the region and deter potential threats or attacks," Abdul Moneim said.

He described the US and UK strikes against the Houthis' weapon infrastructure in Yemen, carried out with support from four allied nations, as an "embodiment of US promises" to safeguard regional security.

Both nations have said their strikes against the Houthi weaponry were conducted in self defense and to protect international vessels from the group's indiscriminate attacks on shipping in the Red Sea.

"Such strikes will quickly put an end to tensions in the Red Sea and other chokepoints so navigation may go back to normal," Abdul Moneim added.