Yemeni rebels’ Red Sea attacks threaten global supply chains
Houthi followers hold a cutout banner, portraying the Galaxy Leader cargo ship which was seized by Houthis, during a parade as part of a 'popular army' mobilization campaign by the movement, in Sanaa, Yemen, 7 February 2024. REUTERS/Khaled Abdullah.
A once ragtag group of minority rebels in Yemen is becoming a serious threat to supply chains, the shipping industry and – given its dependence on maritime trade – potentially to the global economy too.
The Bab el-Mandeb Strait, which sits at the southern tip of the Red Sea, has become an increasingly dangerous chokepoint off the coast of Yemen, after the rebel Houthi group declared in November that it would target ships heading to Israel for attack or seizure. The group’s motive is ‘retribution’ for Israel’s war in Gaza, itself retaliation for the 7 October 2023 attacks by Hamas on Israel.
An already unpredictable situation has become more complicated, as naval ships from the US and the UK have targeted sites in Yemen in a bid to deter the Houthis from continuing to menace trade vessels. But the Houthis have announced their intentions to expand their pool of targets to include those that carry US or British flags, making maritime movement even more precarious.
Shipping prices have increased and observers warn that, if it’s not contained, the crisis will have an impact on the economies of the US and of Europe. The shipping industry and global trade are already reeling from the war in Ukraine and the impact of the climate crisis. What’s more, water levels in the Panama Canal are abnormally low, so traffic moving through the passage has been slowed.
The rise and rise of the Houthis
Formally known as Ansar Allah, the Houthi rebels have risen from a small and obscure group founded by a former member of the Yemeni parliament into a military force that now claims nearly two-thirds of Yemen, including the Red Sea coast and the capital Sanaa. At sea they control the area from the Gulf of Aden to the northern part of the Bab el-Mandeb Strait, the entryway to the Red Sea and to the Suez Canal, a pivotal waterway where between 12 and 15 per cent of global trade and about 20 per cent of container shipments transit every year.
Houthi militias were initially seen by both Yemeni rivals and regional powers as a negligible lightly armed group confined to caves and mountaintops. But the group’s leadership began to capitalise on flimsy links to Shiitism and align themselves with predominantly Shiite Iran, a regional military heavyweight readily cultivating proxies to counterbalance a US-led alliance in the area.
If the risk persists, shipping routes will evolve and the industry will adapt, but the additional costs will be difficult to avoid
Thomas Belknap Jr
Co-Vice Chair, IBA Maritime and Transport Law Committee
From 2004 onwards, the group’s fighters have been gaining in military prowess, beginning with their involvement in a protracted struggle with the previous secular Yemeni regime and later against a well-funded military coalition led by Saudi Arabia and the United Arab Emirates. The Saudi-led campaign began in spring 2015 and mostly relied on US weapons shipments. In 2019, the Houthis launched daring attacks – using more advanced weapons and drones – on Saudi oil facilities. These assaults forced Riyadh to shut down two of its main oil facilities and remove five per cent of the country’s oil production from the market.
The war failed to oust the Houthis and the Saudis began to de-escalate in 2023. The botched adventure instead strengthened the Houthis’ hand and pushed them further into the arms of Iran.
The Houthis have placed themselves on the international agenda again by inserting themselves into the ongoing Israel-Gaza conflict. Since November, the group has targeted ships passing through the narrow waters of Bab el-Mandeb towards the Suez Canal. The Houthis lack a navy or an air force, and instead use drones and anti-ship missiles to launch their attacks. In one instance, they filmed themselves using a helicopter to board and capture an Israeli cargo ship, later turning it into a local tourist destination. Meanwhile, the UK-owned bulk carrier the Rubymar was reported sunk in early March after being hit by Houthi missiles on 18 February.
The group claims to target only those vessels heading to Israeli ports because, they say, Israel prevents food and medicine entering Gaza. In response, the US and the UK, with support from allies, launched airstrikes against Yemeni targets at sea and later on land. The allies’ ships – alongside those of other countries – have also shot down Houthi drones at sea in order to prevent attacks on vessels. This in turn has intensified fears of an escalation of the conflict in the Middle East, which is responsible for 31 per cent of the world’s oil supply, while the Middle East and North Africa region produces 29 per cent of the world’s liquefied natural gas (LNG). The US maintains that it is defending freedom of navigation and is working to ‘restore America’s deterrence’ in the region.
‘Without a formal declaration of war, various legal issues are left in a grey area, particularly from a contractual perspective’, says Wesley Wood, Regional Representative Middle East on the IBA Maritime and Transport Law Committee and a partner at Al Tamimi & Company in Dubai, who refers to the situation as an ‘unusual’ conflict. ‘Whilst much of the conflict is being carried out at sea, it is customary international law, including, inter alia, the UN Charter and the Geneva Convention, which will regulate the parties’ actions, particularly those of the state actors involved.’
The Houthis have not backed down and still insist that only a credible Israel–Gaza ceasefire would resolve tensions in the Red Sea. The UK and the US have imposed sanctions on leaders of the group while, in mid-January, the latter relisted the group as a terrorist organisation. This has prompted the Houthi authorities in Yemen to order UN and other humanitarian staff holding US and UK passports to leave the country within a month.
Supply chain pain
The biggest impact has been on trade traffic in the Red Sea and the Suez Canal. Commercial vessels are now mostly bypassing the route altogether, preferring to take the more costly and much longer passage around the Cape of Good Hope in South Africa. In February, the UN Conference on Trade and Development (UNCTAD) estimated that in the Suez Canal, ‘transits are down by more than 40 per cent compared to their peak’, with most of the decline occurring over the last two months.
Oil and gas exporters in the Middle East have also been affected. The US Energy Information Administration says that 12 per cent of seaborne oil trade and eight per cent of LNG trade to the US and Europe passed through the Bab el-Mandeb Strait in the first half of 2023. Prior to the crisis, two or three gas carriers would sail through the region daily, according to UNCTAD. As of mid-January, LNG carriers have almost entirely ceased using the Red Sea.
Meanwhile, the Kuwait Oil Tanker Company says it’s now holding daily meetings to monitor the situation, while Qatar Energy, the world’s second largest exporter of natural gas, has reportedly rerouted most of its ships headed to Europe.
Thomas Belknap Jr, Co-Vice Chair of the IBA Maritime and Transport Law Committee and a partner at Blank Rome in New York, says the vessel owners and charterers he represents are grappling with tough legal questions. These include the question of when an owner may decide not to transit the Red Sea due to the risks of attack and when they are contractually obligated to proceed, or, at least, liable for the consequences of refusing to do so.
‘A lot of this arises under force majeure clauses in their contracts’, says Belknap. ‘Many such clauses allow the parties not to perform where there is, for instance, [an] act or risk of war or terrorism. Additionally, some flag states are issuing mandates that vessels flying their flags [do] not transit the area, which may itself be another basis for not performing under a force majeure provision.’
Wood agrees that the conflict poses contractual legal challenges. ‘Disputes have and will continue to arise between vessel owners and charterers, in circumstances where charterers order a vessel to transit through the Red Sea’, he says. ‘Questions inevitably arise as to whether or not the terms of the contract adequately address a scenario such as this and owners will have to carefully consider their contractual rights and obligations under the charter party whilst at the same time ensuring the safety of the crew and vessel.’
Belknap predicts there will be multi-layered consequences for shipping and maritime transportation if the situation is not diffused. ‘Clearly this will have at least a short-term impact on costs, as the alternative route around the African Cape is quite a bit longer and will cause delays and additional costs – and environmental impacts, such as fuel consumption’, he says. ‘It also adds quite a bit of uncertainty to cargo logistics and insurance.’
Jan Hoffmann, Chief of UNCTAD’s Trade Facilitation Section, said in late January that threats included rising costs, global delays, the risk of inflation and the worsening of factors contributing to the climate crisis. Since early December 2023, average shipping cost rates from Shanghai have more than doubled. Those to Europe have tripled, while those to the US West Coast have increased even though such vessels don’t traverse the Suez Canal. ‘Clearly shipping, labour and insurance costs have been significantly affected and are likely to continue to rise, particularly if there is no change in the current position’, adds Wood.
While Europe has high reserves and healthy supplies, particularly of natural gas shipped from Norway and the US, the longer the crisis lasts and the greater the degree to which it expands, the more perceptible the impact will be on energy supplies – and on the cost of consumer goods and food products such as palm oil and grain. ‘If the risk persists, shipping routes will evolve and the industry will adapt, but the additional costs will be difficult to avoid’, says Belknap.
Emad Mekay is a freelance journalist and can be contacted at emad.mekay@int-bar.org