A series of attacks on commercial vessels in the southern Red Sea has sent ripples through the global shipping industry and raised concerns about the security of one of the world’s most vital maritime trade routes.
The attacks, attributed to Yemen’s Houthi rebels, have prompted several major shipping companies to divert vessels away from the Suez Canal and around the southern tip of Africa instead. This adds significant cost and time to journeys, and has driven up oil prices and insurance premiums for vessels traversing these volatile waters.
The Suez Canal: Lifeline of Global Trade
The 120-mile Suez Canal is the fastest connection between Asia and Europe, making it indispensable for the global energy trade and supply chains. Around 9.2 million barrels per day of oil flowed through the canal in the first half of 2023 – about 9% of total global demand. It also serves as a key route for LNG tankers, with around 4% of total imports passing through in 2023 so far.
Beyond energy commodities, the Suez Canal can accommodate over 60% of the world’s tanker fleet and over 90% of bulk carriers when fully laden. It serves as a vital trade artery linking producers in the Middle East and Asia with consumers in Europe. For a vessel carrying crude oil from the Arabian Gulf to Rotterdam, traversing the Suez Canal cuts almost 5,000 extra nautical miles off its journey compared to the alternative route around the Cape of Good Hope and through the southern Atlantic.
With revenue from canal tolls exceeding $9 billion in 2022, the waterway also represents a crucial source of income for the Egyptian economy. However, this economic lifeline is coming under fire as ship owners opt for longer routes to avoid the escalating security threat.
Rerouting on the Rise
On December 17th, the Suez Canal Authority reported that 55 vessels had rerouted via the Cape of Good Hope since the recent attacks began on November 19th. Major firms like shipping giant MSC have temporarily halted Suez Canal transits, alongside other companies with significant Middle East exposure.
The rerouting tide also swept up oil major BP, which paused all Suez Canal tanker traffic as the security landscape shifted dramatically. However, the Suez Canal Authority pointed out that 77 vessels still passed through the Canal on December 17th, including some ships that were already mid-voyage when rerouting decisions were announced.
So while traffic declines are still relatively limited so far, the Houthi attacks have clearly rattled the shipping world and prompted emergency contingency planning across the industry. The longer these threats persist, the more likely it becomes that companies will make permanent alterations to their routing decisions to minimize risks – chipping away at the Suez Canal’s indispensable role on the seas.
East-West Connections Under Strain
The developing situation speaks to the vulnerability of maritime chokepoints that serve as indispensible economic connectors between regions. Like the Strait of Hormuz and Bab-el Mandeb strait before it, the security of the Suez Canal and Southern Red Sea is coming under intense stress as Yemen’s civil war spills over and threatens the safe passage of vessels in international waters.
Given the Suez Canal’s outsized role in facilitating global trade, any lasting disruptions or reductions in traffic may have ripple effects through strained global supply chains already battling pandemic disruptions, labor unrest, and economic headwinds. With over 50 vessels opting for lengthy detours around Africa’s Cape, shipping customers also face delays as journey times expand by up to 5 extra days.
Oil markets are also closely monitoring events, with prices seesawing on news of Houthi attacks or Egyptian displays of military force. After the recent attacks, war risk insurance premiums for Red Sea transits surged elevenfold to over $100,000 per voyage.
Together, these impacts underscore the delicate economic links that connect Asia and Europe via maritime corridors like the Suez Canal. With ship owners carefully tracking regional hazards, traffic declines may accelerate if risks continue mounting without restraint. For the global economy to stabilize, securing these indispensable east-west connections will only grow as a priority for all.
