[Global Focus] The Red Sea Turned into a 'Powder Keg'... Logistics Turmoil Continues

US "Airstrikes Continue"... Houthi "All-Out Retaliation"
15% of Shipping Passes... Logistics Crisis More Severe Than COVID
Inflation Concerns... Consumer Prices Up 0.7%

The confrontation between the Western forces led by the United States and the Iran-aligned Houthi rebel forces in Yemen surrounding the Red Sea is reaching a peak. The multinational forces led by the U.S. have launched eight attacks over ten days. With the U.S. expressing its intention to continue airstrikes and the Houthis showing no signs of backing down, tensions are escalating day by day. Concerns are also rising about the impact on the global economy as the Red Sea, a vital artery of worldwide logistics, is being blocked.

Who are the Houthi rebels?

The Houthi rebels are a Shia Muslim armed group in Yemen. They claim to be part of the 'axis of resistance' against Israel and the United States, alongside armed factions like Hamas and Lebanon's Hezbollah. Supported by Iran, they are also in confrontation with Sunni countries such as Saudi Arabia.

British destroyer conducting operations against Houthi rebels in the Red Sea
[Image source=Yonhap News]

Since 2014, they have been engaged in a civil war against the Yemeni government backed by Saudi Arabia and currently control northwestern Yemen, including the capital Sana'a. This area is home to the majority of Yemen's population and includes key maritime gateways such as the Red Sea and the Bab el-Mandeb Strait. The Yemeni government has stated that Iran has provided military and financial support to the Houthi rebels, but Iran denies these claims.

After the outbreak of war last year between Israel and the Palestinian armed faction Hamas, the Houthis announced in November that they would target Israeli commercial vessels passing through the Red Sea and ships heading to Israel. They claim this is in response to Israel's attacks on the Gaza Strip. However, in reality, they have indiscriminately launched attacks regardless of any connection to Israel, prompting a U.S. response.

Prolonged confrontation... escalating geopolitical conflict

The United States has been increasing pressure on the Houthis with tough rhetoric day after day. John Finer, Deputy National Security Advisor at the White House, said in an interview with ABC News on the 21st (local time), "We will continue airstrikes beyond deterrence until the Houthis' ability to sustain attacks is degraded." U.S. President Joe Biden stated on the 18th that the attacks on the Houthis would continue.

According to Voice of America (VOA), a U.S. Department of Defense official revealed that the Houthi rebels have launched at least 31 attacks in the Red Sea and the Gulf of Aden since November 19 last year.

The U.S. and the U.K. carried out their first surprise strike on Houthi military facilities around 2:30 a.m. on the 11th. Australia, Bahrain, Canada, and the Netherlands supported this operation, and eight governments including South Korea issued statements of support. Since then, up to the 22nd, there have been eight rounds of bombing against Houthi bases within Yemen. Last month, a multinational security initiative called 'Operation Prosperity Guardian' was launched with the participation of more than 20 countries.

Despite daily offensives led by Western countries spearheaded by the U.S., the Houthis remain steadfast and do not retreat. During the first U.S. airstrike, they warned of all-out retaliation and immediately counterattacked by firing missiles at U.S. oil tankers. According to the British newspaper The Guardian, Houthi leader Abdul Malik al-Houthi said in a speech on the 18th, "It is a great honor and blessing to confront the United States directly," and claimed, "The missile attacks by the U.S. and the U.K. on Yemen show the impact of the Houthis' attacks on Red Sea commercial vessels."

In response, the U.S. State Department announced on the 17th (local time) that it would designate the Houthi rebels as a 'Specially Designated Global Terrorist (SDGT)' entity effective February 16. Being designated as an SDGT freezes all assets within the U.S. and prohibits transactions with U.S. persons, effectively cutting off the Houthis' financial resources. This is the first time in three years that the Houthis have been designated as an SDGT. President Joe Biden had designated the Houthis as a 'Foreign Terrorist Organization (FTO)' in January 2021 but lifted both the FTO and SDGT designations in February following UN concerns about adverse effects on humanitarian aid. This time, the FTO designation has been postponed.

As tensions in the Red Sea show signs of escalation, neighboring countries are also expressing concern. Saudi Arabia's Foreign Minister Faisal bin Farhan Al Saud told CNN, "We are very concerned," and expressed hope for regional tension reduction based on freedom of navigation.

Blocked 'logistics artery'... logistics crisis more severe than COVID-19

As navigation in the Red Sea becomes difficult, the ripple effects of a global logistics crisis are growing. The Red Sea is the shortest route connecting Europe and Asia and is a central hub for global logistics. Approximately 15% of global maritime transport passes through the Red Sea. According to the maritime data platform MarineTraffic, only about 150 vessels passed through the Suez Canal in the first two weeks of January this year, compared to 400 vessels during the same period last year.

Vincent Clerc, CEO of AP Moller-Maersk Group, said at the World Economic Forum (WEF, Davos Forum), "This means supply chains could be disrupted for at least several months," adding, "There will be no winners. Ultimately, there will only be losers." Tobias Meyer, CEO of DHL Group, said that a shortage of container ships relative to logistics volume will occur starting two weeks from now.

Currently, most vessels are bypassing the Red Sea by sailing around the Cape of Good Hope in South Africa. This adds about 3,500 nautical miles, increasing transport time by up to two weeks and raising costs. According to shipping consultancy Drewry, the price for using a 40-foot container rose by 15% earlier this month. South Korea imports raw materials from China, Southeast Asia, and South America to manufacture products for export to the U.S. and Europe. If the geopolitical conflict in the Red Sea prolongs, domestic industries will also suffer damage.

As sailing distances increase and ships become scarce, the logistics crisis has begun. Tesla's Berlin Gr?nheide factory in Germany will halt production from the 29th of this month to the 11th of next month due to difficulties in parts supply caused by the blocked Red Sea route. Volvo is also suspending operations at its Ghent plant in Belgium due to delays in automobile gearbox deliveries. British clothing company Next, Swedish furniture brand IKEA, and American footwear brand Crocs have all warned of delivery delays. Steve Lamar, CEO of the U.S. Apparel and Footwear Association, said, "The threat to Red Sea shipping is a threat to global maritime commerce," adding, "There is worldwide logistics disruption."

The current logistics crisis in the Red Sea is more severe than at the early stages of the COVID-19 pandemic. Alan Murphy, CEO of Sea-Intelligence, told CNBC that the reduction in vessel capacity caused by the logistics crisis originating from the Red Sea is the second largest since the Ever Given ship grounding incident in the Suez Canal in March 2021. He said, "It is much bigger than the early COVID-19 pandemic," and "Shipping companies will need to add more vessels."

The logistics crisis is also causing price fluctuations. JPMorgan Chase estimates that if delays originating from the Red Sea continue, global consumer prices will rise by 0.7% in the first half of this year due to increased maritime freight and insurance costs. Prolonged logistics disruptions in the Red Sea could even affect the timing of interest rate cuts by the U.S. Federal Reserve (Fed).