Rising Red Sea Risks: Houthi Attacks Escalate Shipping Costs and Global Supply Concerns

The cost of shipping through the Red Sea is increasing as Yemen’s Houthi rebels intensify their attacks on vessels they associate with Israel, raising concerns about the potential disruption of global supplies transiting the region. The Houthis recently claimed responsibility for attacking a Norwegian commercial tanker with a missile as part of their protest against Israel’s actions in Gaza. This escalation highlights the growing risks in the Middle East conflict.

The Bab al-Mandab Strait, a crucial passage connecting the Red Sea and the Gulf of Aden through which around 23,000 ships annually navigate, offers strategic targeting opportunities for attacks. Duncan Potts, a former vice admiral in Britain’s Royal Navy and maritime security commander in the Gulf, now a director at Universal Defence and Security Solutions consultancy, warns that these attacks could pose a significant global economic threat beyond regional geopolitical implications.

The southern Red Sea has been designated a high-risk area by the London insurance market, necessitating ships to inform their insurers when passing through and pay additional premiums for a typical seven-day coverage period. War risk premiums have recently increased, with the cost for a seven-day voyage amounting to tens of thousands of dollars in additional expenses.

Munro Anderson, head of operations at marine war risk specialist Vessel Protect, part of insurer Pen Underwriting, predicts continued heightened rates in the Red Sea for commercial operators in the short to medium term. The average daily rates for supertankers have surged to over $60,000, compared to about $40,000 last month.

In response to the increased risks, some shipping companies are rerouting their vessels via the Cape of Good Hope, adding to journey times and costs. The Houthis’ capability to launch attacks at night represents a new threat level. Israel’s southern port of Ashdod, a vital terminal, views these attacks as a direct threat to its maritime trade.

U.S. President Joe Biden’s administration, through National Security Adviser Jake Sullivan, has discussed forming a maritime task force to ensure the safe passage of ships in the Red Sea. Kitack Lim, secretary-general of the UN’s shipping agency, emphasized that commercial shipping should not become collateral damage in geopolitical conflicts and called for international cooperation to maintain safe and unhindered global navigation.