The Red Sea Crisis: A Simple Analysis

The recent Red Sea crisis has transformed the global shipping landscape, leading to a significant increase in shipping rates. This situation arose due to attacks by an armed group in Yemen, known as the Houthis, who have diverted more than a third of the trade that normally passes through the Suez Canal through southern Africa, interrupting the normal flow of trade. What seemed like a scenario of excess capacity and low prices changed drastically, generating a rapid rise in rates globally.

But who are the Houthis and what is their objective with these attacks?

The Houthis, belonging to a Shiite Muslim minority in Yemen, have been open enemies of Israel and the United States since the invasion of Iraq in 2003. This group, which has taken control of important areas of Yemen, including its capital since 2015, is part of the called "axis of resistance" against Israel, together with Hamas and Hezbollah. It is estimated that the group has an armed force of 200 thousand men. The Houthis have threatened to bomb all ships headed to Israel and its allies, seeking to pressure the cessation of military actions in the Gaza Strip. In their statements they mention that they will only give in when Israel allows the entry of food and medicine. These events have generated a reconfiguration in maritime routes, affecting trade and shipping rates worldwide.

How Do Economic Powers Respond to the Red Sea Crisis?

World powers such as the United States, the United Kingdom and the European Union have taken decisive measures to protect sea routes. The United States and the United Kingdom have increased their military presence in the area, shooting down drones and attacking positions in Yemen to counter Houthi attacks. This includes direct military action and the defense of commercial vessels, marking a firm attempt to keep international trade routes open. It should be noted that various United States military bases have been attacked in recent weeks, and for the first time, American soldiers have died in an attack on a military base located in Jordan, so it is possible that we will see a reaction in the short term.

Meanwhile, the European Union, although initially reluctant, has joined these efforts, planning to send warships to contribute to maritime security. At least seven European countries will take part in Operation Aspides and will provide warships, logistics and air surveillance, although with limitations on their participation in direct combat in Yemen.

China, on the other hand, takes a more cautious stance. Despite its significant commercial interests in the stability of these routes, it has called for restraint, even suggesting that Iran could play a mediating role in the conflict. The United States has asked China to mediate the conflict, but Beijing does not seem determined to do so.

These global responses reflect the complexity of the conflict and the critical importance of the affected trade routes, underscoring the delicate balance of power and diplomacy at play.

What impact is it having on transportation costs for the different routes?
The Red Sea crisis has led to a notable increase in shipping costs worldwide. The necessary detour around the Cape of Good Hope, due to the blockage of the Suez Canal, adds approximately 10 additional days to shipping routes, significantly raising costs for affected vessels. This change primarily affects routes between Asia and Europe, although the impact extends globally due to the decrease in container availability.

The delay in the return of containers to Asia has transformed a scenario of excess capacity into one of relative shortages, affecting all maritime transport routes. As a result, since the beginning of November we have seen an overall 80% increase in fares from China, with significant variations between different routes. While Asia - Europe rates have doubled, those between Asia and South America have experienced increases of between 20% and 30%.
This analysis highlights how the Red Sea crisis is reshaping the shipping landscape, with significant implications for global logistics costs and efficiency.

How long will the conflict persist and what are the possible outcomes?
The current situation marked by attacks and geopolitical tensions shows no signs of quick resolution. Let's evaluate the possible directions this conflict could take:

Continuous Stagnation: The most immediate possibility, where the situation does not change significantly. The current US measures do not seem sufficient to alter the course of events and encourage shipping companies to return to this route.

Search for Peace: Attempts to cease fire between Israel and Hamas could offer a respite from the tension in the Red Sea, although it would be the simplest solution, Israel does not seem to have any intention of stopping its advance in the short term.

Military Actions to Neutralize Threats: Interventions from global powers could attempt to weaken the Houthis and bring about a cessation of attacks on shipping, but this would require extensive military commitment and time.

Escalation to Open War: A scenario of lower probability but with serious consequences, where Iran makes its support for the rebels even more explicit and this escalates the conflict to higher levels, globally affecting markets, including oil prices.

Diplomatic Negotiations: An ideal solution would be successful mediation, possibly with China as mediator, to calm tensions and control attacks, offering a path to peace, getting Iran to withdraw support for the Houthis. It is a very positive scenario and perhaps the most feasible solution to end the problem in a short time.

In this complex scenario, maritime trade routes face uncertainty, affecting transportation costs and global logistics. The international community remains hopeful for a resolution that will restore security and stability in this crucial waterway.