Ever since the Houthi rebel group in Yemen declared their intention to block ships bound for Israeli ports from traversing the Red Sea, which leads into the Suez Canal unless Israel permits humanitarian aid to enter the Gaza Strip, several international shipping companies have opted to alter their routes, avoiding the Red Sea and thus also bypassing the canal.

However, in mid-December, Osama Rabie, head of the Suez Canal Authority (SCA), said that navigation in the canal remained regular and that since the start of the Houthi threat on 18 November only 55 ships had opted to reroute around the Cape of Good Hope to avoid the Red Sea.

This compared to 2,128 vessels that had crossed the canal during the same period, he said.

“While this currently doesn’t impact Suez Canal revenues, an extended crisis in the Bab Al-Mandab Strait [which leads into the Red Sea] could eventually have a direct effect on the canal’s income,” said Mohamed Ali Ibrahim, a professor of transport economics.

“The Suez Canal is a vital shipping corridor for 12 per cent of global trade. Ten per cent of energy is transported from south to north through the canal. About 50 per cent of the canal’s revenue comes from the service fees of container ships, 18 per cent from bulk carriers, and an additional 18 per cent from oil and energy vessels,” Ibrahim said.

International shipping lines usually resort to the Cape of Good Hope route when the Red Sea is under threat or when the price of a barrel of oil drops below $60, giving transporters room to compensate for the extra shipping costs, he added.

However, the ongoing situation poses a challenge to global trade, especially with the rising cost of oil and the extended distances travelled by cargo ships. The Red Sea and Suez Canal route allows giant vessels to save between nine days and two weeks on their journey time compared to the Cape of Good Hope route, Ibrahim said.

A prolonged crisis in the Bab Al-Mandab Strait would cast a heavy shadow over all the Red Sea ports, including Aqaba and Eilat, where navigation traffic has already seen 85 per cent disruption.

Ibrahim said that the Danish company Maersk, the world’s largest shipping company, had announced the resumption of its voyages through the Suez Canal but has also increased the cost of shipping a container. The increase, coupled with a 200 per cent rise in maritime freight insurance costs, poses an additional strain on global trade, exacerbating challenges to global supply chains that have persisted since 2020, he added. However, on 2 January the shipping line paused Red Sea voyages “until further notice”, it said in a statement following an incident that involved their vessel.

French shipping company CMA CGM also stated that they are putting transit through the canal on hold due to the attacks.

Threats in the Red Sea are not the only challenges facing international trade.

Transport and logistics expert Emad Elsaey said that decreased rainfall in the region of the Panama Canal, an alternative trade route, has affected water levels in the canal and caused a slowdown in shipping movements through Panama. The decreased rainfall has hindered the filling of the canal basins, he added.

The Panama situation as well as the threat of the Houthis to the Bab Al-Mandab Strait complicate the international trade situation. Since the closures due to the Covid-19 pandemic, global supply chains have not fully recovered, and many ports still face congestion and the slow processing of shipments, especially in Eastern Europe, with this resulting in worldwide inflation.

Elsaey added that energy shipping companies still use the Suez Canal, but given that global trade is threatened by various shipping crises and Europe is relying on other energy sources as an alternative to Russian energy following the Ukraine crisis, they will likely incur higher insurance costs.

Threats to energy transport ships are greater than to container vessels, he said. “Targeting container ships might cause some partial damage that can be repaired, but targeting energy carriers can mean the loss of an entire shipment and the ship itself,” he added.

Nonetheless, oil-shipping companies have not diverted their ships from the Red Sea as the majority of these are partially or completely owned by the Gulf countries. The largest vessels are owned by Russian or Chinese companies, both countries that are politically distant from the dispute with the Houthis in Yemen.

These factors combined may exacerbate inflation and the stagnation of global trade, especially with the rise in energy prices, Elsaey warned.

The crisis in the Bab Al-Mandab Strait is affecting governments in Europe and the US, said Tariq Al-Shami, a political researcher, on the Al-Hadath TV Channel.

The increased costs of shipping and insurance as a result of the crises are borne by the end consumer in Europe and the US, leading to popular discontent. US President Joe Biden is not doing well in recent opinion polls, partly as a result of rising inflation in the US and perceived failures in handling the economy.

Ibrahim said that the crisis in the Red Sea could have only one political solution: the need by the international powers to intervene to facilitate the entry of humanitarian aid into Gaza.

Using traditional land trade routes starting from the UAE’s Jebel Ali, passing through Saudi Arabia and Jordan, before reaching the ports of Abaqa, Eilat, Sokhna, and Port Said would not be a good alternative to threatened maritime routes in terms of time, cost, and insurance, and the same thing was true of railway transportation, said Khaled El Sakaty, dean of the Faculty of Transport and Logistics in Cairo.

Land transport poses higher risks compared to sea and air transport, he noted, adding that the current rise in the cost of marine insurance is temporary and only applies to high-risk areas.

* A version of this article appears in print in the 4 January, 2024 edition of Al-Ahram Weekly