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Houthi attacks pose a major threat to global trade

Houthis warned that they would be targeting any ship linked to Israel. Credit: Getty

December 18, 2023 - 7:00am

Houthi attacks on commercial shipping vehicles in the Red Sea have now reached a critical point, with many global shipping companies stopping their vessels from moving through the area. The decision was first taken by Danish shipping giant Maersk and Germany’s Hapag-Lloyd, now followed by French company CMA CGM. The companies decided to cease passage through the Red Sea after the container ship MSC Palatium III was attacked by a Houthi suicide drone on Friday.

The situation in the Red Sea has been escalating for some time. Last month the Houthis, who control most of Yemen and are backed by Iran, seized the ship Galaxy Leader and imprisoned the crew. The Houthis said they would be targeting any ship linked to Israel in an act of support for Hamas. Since then, it appears that the group has broadened its net and is now trying to disrupt global shipping flows.

The Biden administration has been keen not to highlight the problems in the Red Sea, recognising that doing so would risk pulling the United States into what could become a regional conflict in the Middle East. The administration has also been ignoring increasingly frequent targeting of American bases in the region: recent reports suggest that since 17 October there have been 92 such attacks.

But the attacks on ships now clearly threaten to throw sand in the gears of global trade. The Bab al-Mandab chokepoint in the Red Sea accounts for 10% of global seaborne oil flows and also a large amount of liquefied natural gas. The alternative route, which involves sailing around the entire African continent, adds 40% to the voyage’s distance. 

The main economic risk that this introduces is to delay the arrival of key goods which would lead to shortages and inflation. Similar happened when global supply lanes were interrupted by the pandemic in 2020. This will pose difficult problems for the Federal Reserve, which last week surprised markets by saying that it would lower interest rates in 2024. This came as good news for President Biden, who trails Donald Trump in the polls due to severe economic pessimism amongst the electorate.

Oil markets also seem likely to be affected. For weeks, oil traders have been driving down energy prices despite Opec+ signalling that they would be cutting production and increasing tensions in the Middle East. Much of this appears to have been due to the preponderance of algorithmic trading in the market. It is certainly possible that oil markets continue to ignore the realities of supply and demand, but it will become increasingly difficult to do so as global shipping is disrupted. This, too, will impact Biden’s chance of re-election as energy prices are a hot political topic in America.

Just as in the 1970s, conflict in the Middle East is threatening to give rise to chaos in the energy markets and rising inflation. The Biden administration has no easy options on the table. Intervening directly in the region will drag the United States into a conflict it simply cannot afford. Yet failure to intervene will result not just in economic pressures, but also in other countries calling into question the viability of American security guarantees.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Saul D
Saul D
7 months ago

One other observation is the bubbling up of diverse conflicts around the world which act like pulling threads in the knit of American foreign policy. None is definitively anti-American, but collectively they fray at American and Western interests and stability – elements that might create opportunities for China if its objective really is to reclaim Taiwan or to extend its spheres of influence.

Matt M
Matt M
7 months ago

I know he might have an annoying style but kudos must go to Peter Zeihan. He predicted the Russia/Ukraine conflict (which he forecasts will continue westward once Ukraine is subdued). He forecast the onshoring of US industry away from China and the end of globalisation. He talked about the inevitable demise of the “net zero” push – given the technology to achieve it doesn’t exist.

But he also predicted massive state backed piracy and other attacks on shipping disrupting energy flows (particularly to China and India). Zeihan thinks that the US will not intervene to uphold the rules of global safe transit, rather they will protect their own shipping while ramping up domestic energy production and industry.

He thinks only those countries with blue-water navies will be able to survive as importing nations. He is extremely pessimistic about China and Germany. And things do look grim for them at the moment.

Last edited 7 months ago by Matt M
Stevie K
Stevie K
7 months ago
Reply to  Matt M

Peter Zeihan is pleasingly opinionated and dares to make hard calls on difficult topics. He’s got a wry sense of humour and is always worth a listen, even if every single thing he predicts doesn’t happen. His preferred format of 4-6 minutes every single day is a breath of fresh air. One of my favourite nutters (and that is my highest word of praise).

Steve Jolly
Steve Jolly
7 months ago
Reply to  Matt M

I don’t know if it was him or someone else but I’ve heard similar takes. The ‘rules based order’ that reigned from post WWII through the present was contingent upon two things, American naval superiority and American economic dominance. The first condition still holds but not the second.
When America was indisputably the world’s largest and strongest economy, it made sense to uphold a doctrine of unfettered globalization as most trade benefited the US in some way, either b/c it was financed by American banks or the trade was in US dollars if not directly. China took advantage of the combination of their cheap labor supply, government subsidized economy, and the freedom of the seas provided by American taxpayers to build up their own nation with little regard for anyone else, with the result that they’ve probably killed the goose that laid the golden egg.
Because having a near peer competitor, particularly one that offers an alternative to trading in dollars, changes the calculus of both what the US can afford and what is in its interests to pay for. The US no longer has an incentive to maintain a level playing field, and every incentive to begin to use its still unchallenged naval power to tilt the board to favor America, particularly in a time of domestic political unrest. Why should America secure freedom of the seas for everyone when they can just as easily make such protections contingent upon alignment with American interests and economic benefit.

Andrew Fisher
Andrew Fisher
6 months ago
Reply to  Matt M

China is building that very navy….. As obviously the US did before it, and the British before them.

Alex Lekas
Alex Lekas
7 months ago

While I would be delighted to see the US close up some of its dozens of bases in places we have no reason to be in, including South Korea and most of Europe, attacks on commerce border on acts of war.
Those cannot be allowed to stand, and the other parties impacted can’t sit back and wait on “American security guarantees.” It’s not 1991 anymore.

Charles Hedges
Charles Hedges
7 months ago

My Father spent 5.5 years in combat on the convoys in WW2. When the Somali piracy started he said 20mm cannons would have solved the problem. Decks do not need to be reinforced and crew easily trained. Crews trained to hit a plane flying at 250 mph with 20mm cannon shells can hit a boat travelling at 25 mph.
There were British merchant ships which travelled outside of the convoys armed with 6 inch, 3.7 inch and 20mm cannon. On one voyage his ship sunk a U Boat when it surfaced with the 6 inch gun. The question is whether the crews of the merchant ships have the required fighting spirit such as those on operations Pedestal, Vigorous and Harpoon in 1942. The SS Ohio made it to Malta in Operation Pedestal.

Stevie K
Stevie K
7 months ago
Reply to  Charles Hedges

Great story and a practical suggestion. I have long marvelled at the passivity and lack of defensive punch by the merchant navy business regarding piracy prevention. Contemporary life is uncomfortable risk and openly confronting aggression. This is a structural problem, we are seeing some consequences looming out of the fog.

Charles Hedges
Charles Hedges
7 months ago
Reply to  Stevie K

When Captain Angus Campbell OBE was in command of ship in Malta which was being bombed, he picked up a machine gun and took it to the bridge and fired at the German plans. He fired 10,000 rounds in a day and said it was the best days shooting he ever had.

Andrew Fisher
Andrew Fisher
6 months ago
Reply to  Charles Hedges

Yes, but there you are comparing what are still acts of localised piracy with the largest and bloodiest conflict mankind has ever undertaken!

Last edited 6 months ago by Andrew Fisher
UnHerd Reader
UnHerd Reader
7 months ago

The UK , naturally , gave up the port of Aden ( now South Yemen) in ” de-colonising” even though it is part of the vital sea route linking Middle East oil to Western Europe
In addition the Aden hinterland (Radfan) was ( and still is) the perfect foil that ( with Saudi Arabia collaboration) could control any Yemen/Iran designs.

Michael Cazaly
Michael Cazaly
7 months ago
Reply to  UnHerd Reader

Britain is no longer in the world policeman business, and hasn’t been for a long time.
The USA wanted the role and got it.
Britain hasn’t “got the ships, got the men, got the money too…”
Britain should stay well clear.

Steve Murray
Steve Murray
7 months ago
Reply to  Michael Cazaly

A British warship shot down an incoming attack drone in the Red Sea a couple of days ago, the first such deployment of British naval defence since we shot down a missile on its way to destroying a US warship during the early 90s.
We’re already engaged, and so we should be as part of a wider international deployment to protect shipping. That should be the limit of our engagement.

Jim Veenbaas
Jim Veenbaas
7 months ago

WTF is wrong with Biden and his administration? Going soft on Iran has been disasterous. Wake up. Iran hates you and it hates the west.

Keith Merrick
Keith Merrick
7 months ago

Wow! those jackets look like something my uncle and his friends wore in the 1970’s!
Whoops, sorry. Forgot this was serious.

M Lux
M Lux
7 months ago
Reply to  Keith Merrick

Hahaha I was also taken aback by the oddly stylish rebels!

Michael Layman
Michael Layman
7 months ago

My understanding is the US Navy has intercepted the drone attacks from Yemen. However, the threat of attack would be enough to slow shipping through the Red Sea.
I have no doubt the US could wipe the Houthi rebels off the map in an instant, but Biden appears reluctant to do so.
BTW, the federal reserve did not say or promise to lower the bench market interest rate. They only hinted that they may do so. The election year manipulation begins.

Arjen van der Schoot
Arjen van der Schoot
7 months ago

Chinese exports to Europe are significantly impacted by the detour around the Cape right at the time that the country is hoping to revive their export growth engine, so it will be interesting to see how Chinese diplomacy will address this issue, especially after touting diplomatic victories in the Middle East earlier this year. American trade of course doesn’t flow through the Suez Canal at all.

William Brand
William Brand
7 months ago

American security guarantees are worthless under Biden. The nuclear umbrella is an often called and folded bluff. When Iran. gets the bomb America will flee the middle east!

William Brand
William Brand
7 months ago

What about Pakistan? Will they give Hamas nukes? Can Israel strike Pakistan?.Do Israel submarine carry nukes that can reach Pakistan? Is Hamas crazy enough to explode a nuke that will. kill their own people?

William Brand
William Brand
7 months ago
Reply to  William Brand

The only part of Palestine that. Moslems care about is the holy dome of the rock.The people are jusst expendable mayarters

David Lindsay
David Lindsay
7 months ago

Sell your shares in whoever is still insuring shipping in the Red Sea. But no one is so big that their actions can be allowed to block the Suez Canal, and yesterday’s article by David Cameron and Annalena Baerbock made it clear that patience is approaching exhaustion. It is inconceivable that that article had not been approved by the United States.

And now, the French. Catherine Colonna has even gone to Tel Aviv to say it. You can control both Wall Street and Hollywood, which can put you in every Biblical epic and in every Holocaust epic, even though you are not the only people of the Bible and you were not the only victims of the Holocaust. But your conduct can no more be permitted to lead to an obstruction of the Suez Canal than it could be permitted to lead to an obstruction of the Panama Canal. You are not that big. No one is.

Michael Cazaly
Michael Cazaly
7 months ago
Reply to  David Lindsay

Well…yes they are.

Jim Veenbaas
Jim Veenbaas
7 months ago
Reply to  David Lindsay

So theJews control Wall Street and Hollywood? So says the 12-year-old, brain addled antisemite.

David Lindsay
David Lindsay
7 months ago
Reply to  Jim Veenbaas

It is fine by me that they run Wall Street, because it is the Goldmans and Sachses of the world who are saying, “Dammit, no, our distant cousins in the hippy commune kibbutzim and the rebuilt shtetls in the Sun do not get to lose us this kind of money. Reopen the goddam Canal.”

Douglas Proudfoot
Douglas Proudfoot
7 months ago
Reply to  David Lindsay

Houthis are military pigmy punks. If the US Navy was ordered to respond, it could swamp the Houthi sea shore with cheap switchblade 600 or similar FPV drones and wipe out every military asset they have located near the coast, and every dock facility they could use to unload military supplies.

If you want to silence Achmed, The Dead Terrorist, you don’t try to gag the dummy. You gag the ventriloquist, Jeff Dunham. Iran is the source of most of the funding for terrorist groups in the Middle East, including Hamas, Hezbollah and the Houthis. It’s time to start retaliating against them.

For starters, Iran has an electronics ship, the MV Behshad, in the Red Sea near Houthi Yemen. It’s probably aiding the Houtis’ attacks on shipping. The US should sink this IRGC ship now.

Iran has a single domestic oil refinery. Perhaps it’s time to put it out of business, and mine all of Iran’s harbors, like a second coming of Linebacker II. Their economy would grind to a halt.

David Lindsay
David Lindsay
7 months ago

Gosh, how the years rolled back while I was reading that.

Michael Layman
Michael Layman
7 months ago

Agreed, we could wipe them out in a day. Tell me why we have not done so?