Escalation in the Red Sea

Conflict in a Key Economic Region

Since 19th October 2023, the Iran-backed Yemeni Houthi militia has been attacking targets in Israel and, in particular, civilian merchant ships in the Red Sea, the Gulf of Aden, the Arabian Sea and the Gulf of Oman. The political leadership of the Houthis controls significant parts of the former Yemeni state apparatus and approximately half of Yemen's population. They are employing their attacks as leverage to demand that the Israeli government cease its military operations against HAMAS, a designated terrorist organization, in the Gaza Strip and elsewhere. Contrary to statements by Houthi representatives that their attacks are solely aimed at Israeli targets and ships heading to Israel, vessels with no connection to Israel are also frequently targeted. The economic impact of the Houthi attacks on shipping traffic in the Red Sea and Gulf of Aden is enormous. The submarine cables laid on the seabed there provide the infrastructure for almost one fifth of global internet traffic. 1 Before the attacks began, twelve per cent of global trade travelled via the shipping route through the Bab al-Mandab Strait and the Suez Canal. Europe received even 99 per cent of its container imports from its most important trading partner China via the Red Sea. 2 Therefore, Europe is more economically dependent on stability in the region than the USA and is thus particularly affected by the current situation. Since the beginning of the Ukraine conflict, Europe has become more reliant on energy from the Gulf states, part whose shipments of oil and gas traverse the waterways along Yemen’s coast. Forced by the Houthi attacks, diverting ships up to 6,000 kilometres around the South African Cape of Good Hope and up the West African coast leads to a doubling or tripling of transport costs, which means an average of two percent additional price inflation in the EU. According to the European External Action Service, this results in additional costs of 360 million euros per hour for the global economy. The longer or, in some cases, completely interrupted supply chains led to temporary production stops in Europe, including for Suzuki in Hungary, Volvo in Ghent and Tesla in Grünheide, Brandenburg.

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