The repercussions on the world economy of the tension in the Red Sea

Attacks by Yemen’s Houthi rebels on ships commercial and military in the Red Sea They already have economic consequences, limited at the moment, and their severity will depend on how long this crisis lasts, specialists point out.

These are the key points of the situation:

Maritime circulation under stress

Attacks on merchant ships have multiplied in recent weeks. About 12% of global maritime trade passes in normal times through the Bab al Mandeb Strait, which controls access to the southern Red Sea. However, since mid-November, the number of containers has fallen by 70%, according to industry experts.

Many shipowners have preferred to interrupt their activity in this area and opt for an alternative itinerary that passes through the South African Cape of Good Hope, much longer and therefore more expensive.

In addition, another region is being affected, in this case by a climatic factor. The drought hitting the Panama Canal has considerably slowed ship traffic between Asia and the United States.

If in normal times about forty ships pass through the Canal every day, the number has been reduced to 24 these days.

Delays and stoppages

Several companies have already warned of delays in their deliveries, including the Swedish furniture giant Ikea. “The situation in the Suez Canal will cause delays”the company said in an email sent to AFP.

Auto manufacturing is being similarly disrupted.

Tesla noted that its production will be suspended for two weeks at its European factory, between January 29 and February 11.

In turn, the Volvo factory in Ghent, Belgium, plans to close three days this month, due to a lack of gearboxes, whose delivery was delayed by “readjustments in maritime routes”.

“Capital goods or electronics companies could encounter delays. And for those who work at a frenetic pace and with little stock, the situation could be problematic.“, confirms Ano Kuhanathan, economist at Allianz Trade, to AFP.

In Spain, the Association of Manufacturers and Distributors (AECOC) announced that several sectors have advanced their orders for certain raw materials and merchandise, such as furniture and textile products, with which they are already observing delivery problems. The objective, the alliance stated, is “avoid breaks in the supply chain.”

Even the transportation of liquefied natural gas will see “affected“due to the escalation in the Red Sea, the Prime Minister of Qatar, Mohammed ben Abdulrahman Al Thani, one of the world’s main producers, warned on Tuesday from the Davos Forum.

Inflationary pressures

Shipping companies are significantly increasing their rates to cover expenses due to the current crisis.

One of the benchmark indicators to measure the cost of freight for goods shipped from China, the Shanghai Containerized Freight Index (SCFI), doubled in one month.

The extra cost of fuel is estimated at 20%, according to Container xChange.

This logistics platform estimates that the crisis in the Red Sea could increase maritime transport costs by 60%, with a premium of around 20% for shipowners’ insurance.

All this fuels fears of renewed inflation.

The Oxford Economics analysis center estimates that all this could add seven tenths to global inflation at the end of this year, assuming that “The Red Sea will be closed to ships for several months and shipping costs will remain around double December prices.”

Everything will therefore depend on the duration of the crisis.

“Avoiding Africa and no longer going through the Suez Canal is more expensive and longer. But at the moment it is more a security problem than a logistics problem.” said Siegfried Russwurm, president of the BDI, the organization of German industrialists, on Tuesday.