The US Navy downed Houthi boats attempting to hijack a ship in the Red Sea. We explain why this escalating conflict could seriously damage global trade—and possibly trigger a wider war. Also: The big worry for Indian exports.
Researched by: Nirmal Bhansali & Aarthi Ramnath
Where exactly is the Red Sea?
It's a narrow inlet located on one of the most important shipping routes in the world—connecting Asia to Europe via the Suez Canal. The problem lies on the other side of the inlet—the Bab al-Mandab strait aka the Gate of Tears. The 32 km channel straddles Yemen on the Arabian Peninsula and Djibouti and Eritrea on the African coast. All ships that travel through the Suez must traverse the Red Sea—and hence pass through the strait—as you can see here:
Any ship that cannot pass through the Suez Canal will have to take the far longer route—travelling around Cape Horn in South Africa—as you can see here:
The numbers: Eighty percent of world trade is delivered by ships—which carry everything from food to fuel. The Suez accounts for around 30% of the world’s cargo shipping traffic each day. Nearly 23,583 ships passed through the canal in 2022. Taking the long way—around Cape Horn—adds a minimum of seven days to a ship’s journey.
Reminder: When the giant container ship Ever Given got stuck in the canal in 2021—blocking traffic—the losses were staggering. Some estimates pegged them at $400 million per hour.
Ok, what’s happening in the Red Sea?
First, meet the Houthis: They are a rebel army that belongs to a Shia subsect in Yemen called the Zaidis. They take their name from their founder—Hussein al Houthi. The Houthi militia was formed in the 1990s—as a response to the excesses of then-president, Ali Abdullah Saleh. Backed by the Saudis, Saleh tried to eliminate the Houthis—resulting in a bloody civil war that continues to this day.
The attacks: Since Israel’s military assault on Gaza kicked off in October, the Houthi militia in Yemen has been targeting ships that pass through the Red Sea. The Houthis openly declared their intent to hijack or attack any ship linked to Israel. They claim the aim is to force a ceasefire in Gaza—but their choice of targets has been fairly indiscriminate.
The campaign has escalated over the past month:
On December 15 the Houthis threatened to attack one ship, struck another one with a drone and launched two ballistic missiles at the mv Palatium III, one of which hit the vessel. The attack on the Palatium III was the first ever use of an anti-ship ballistic missile. All the ships were Liberian-flagged. On December 16th an American naval vessel, USS Carney, shot down 14 drones over the Red Sea while a British ship, HMS Diamond, destroyed another.
Point to note: The Red Sea campaign was a tactical pivot after the Houthis’ attempts to attack Israel with long-range ballistic missiles failed.
The impact on global trade: As the Red Sea waters became increasingly dangerous, ships were forced to take the long way around Africa—skipping the Suez Canal. Seven of the 10 biggest shipping companies by market share have suspended operations in the Red Sea. As of December 19, $80 billion worth of cargo was rerouted due to fears of Houthi attacks. Other data point to note:
Overall, the higher shipping fees and the delays in arrivals will affect 47% of toys, about 40% of household appliances and roughly 40% of apparel being shipped between Asia and Western economies.
The security task force: To crack down on the Houthis, the US and its allies set up a security flotilla of ships—to protect ships in the Red Sea. Its rather bizarre name: Operation Prosperity Guardian. The coalition is mostly made up of Western countries—UK, Canada, France etc. There is a smattering of smaller Arab countries like Bahrain but the leading regional powers—Egypt and Saudi Arabia—are glaringly absent. Also: The participation of other nations appears to be nominal. Only the UK has provided warships—leaving the US to do all the heavy lifting.
What happened now: On Sunday, hostilities reached a new peak. The US sank three Houthi boats—and killed 10 fighters. It marked the “first major direct military engagement” between the two sides. According to the US, this is what happened:
Four vessels from Houthi-controlled areas in Yemen fired upon the [container ship] Maersk Hangzhou and got within metres of the ship, the US military said. Helicopters from nearby US warships responded to a distress call—and, after being fired upon, sank three boats "in self-defence.” The crews were killed and the fourth boat fled the area.
Why this is significant: Maersk is one of the biggest shipping companies in the world. It had suspended operations in the Red Sea. A few days ago, it decided to resume them after the announcement of the security task force. But it has now suspended all scheduled routes through the Red Sea for 48 hours.
While the Houthis lost the battle, the incident shows that they are not going to back down. It isn’t clear if Maersk or any other company will want to return—as long as they are at risk of being attacked—security force or not.
What’s the impact on India?
The Suez is a critical trade route for India—connecting us to the EU market. The Red Sea conflict is pushing up the price of shipping. The containers have to travel a greater distance and companies are slapping on a $5,200 war risk surcharge. Freight rates for Indian shipments headed to Europe and Africa may surge as much as 25-30%. This in turn will increase the price tag on Indian exports. For example:
Shipping costs have already started spiralling and some quotes coming in for January 2024 are almost double the normal, a Delhi-based exporter said. “For instance, for sending basmati shipment from Mundra to a port in Saudi Arabia, the price for a 20 feet container has gone up to $1500 from $800. For Europe, it has gone up to $4000 from $ 2000,” the exporter said.
Prices of Indian agricultural products are expected to jump by 10-20%. FYI: The EU is India’s second-largest export market. Around $225-230 billion in exported goods are at risk due to the Red Sea conflict.
Ok, so how does this play into the war in Gaza?
There is a real risk of a broader war—because this isn’t just about the Houthis. There is a far greater conflict that’s playing out in the region—between Iran and the Arab bloc led by Saudi Arabia.
The ‘new’ Middle East: Israel, the US and its Arab allies have been busy building what they call the “new” Middle East. To weaken and isolate Iran—and strengthen Israel—the US brokered what are called the Abraham accords starting in 2020. These were ground-breaking deals that normalised relations between Israel and UAE—followed by Bahrain, Morocco, and Sudan. Right before the attacks, the Saudis were getting ready to join their ranks.
What’s significant: The Arabs did not make a Palestine state a condition for peace. That’s a real first. Palestine was pretty much irrelevant. You can see why both Iran and Hamas were in a panic over this Saudi deal. This Middle East would make Palestine—and therefore Hamas—totally irrelevant. And leave Iran weaker and more isolated than ever. And that’s why Hamas attacked Israel on October 7—to put Palestine back in the picture—and derail the ‘new’ ME plan.
The new divide: As a result of all this geopoliticking, the Middle East today looks very different. On one side is Iran–which has a small but significant alliance. There's Qatar and Syria and key militias like Hamas in Gaza, Hezbollah in Lebanon, Houthis in Yemen. Not much… but powerful enough to be a thorn in the side for the US and Israel
Enter, the Houthis: The rebel army is part of Iran’s ‘axis of resistance’—which also includes Hezbollah in Lebanon, Shiite establishment in Iraq and Bashar al-Assad in Syria. The campaign in the Red Sea is part of their tightly coordinated strategy. So a direct conflict between the US and Houthis—risks a broader war with the Iran-led axis.
The other problem: For years, Iran has been waging a proxy war with the Saudis in Yemen. Saudis backed the government—while Tehran armed the Houthis. They finally signed a fragile truce in March, last year. Direct strikes on the Houthis could destroy that deal—and upset Riyadh—which has no interest in reigniting the costly war in Yemen.
The risk of war: remains low but significant. Houthi attacks in the Red Sea are unlikely to cease—which could inflict great damage to global trade and the US’ reputation in the long run. Militias in Iraq and Syria have targeted American military bases more than 70 times with drones and rockets. There is tremendous pressure on the US to “reassert” its presence—in response to the war of attrition being waged by Iran and its allies:
“The bigger issue is that the U.S. since early October has also been accepting as normal persistent Houthi missile and drone attacks” on the Red Sea said Vice Adm. Kevin Donegan, a retired Fifth Fleet commander.
“Not responding when U.S. forces are attacked in any fashion risks the lives of U.S. sailors and marines if a missile were to make it past U.S. defences,’’ he said. “It also sets a new precedent that attacking a U.S. ship carries low risk of retaliation and as we have seen invites more attacks from the Houthis.”
Also this: It’s an election year:
Any impression that the president is struggling to exert authority on a world that sometimes seems to be spinning out of control could be politically detrimental at a time when Biden is plagued by approval ratings of less than 40% — perilous territory for a commander-in-chief seeking reelection. Perceptions that Biden is failing to respond robustly to challenges from US adversaries meanwhile could play into public concerns that at 81, he’s not up to the demands of a second term — a narrative that Republicans are seeking to reinforce in the minds of voters.
The bottomline: No one wants a hot war in the Red Sea—not the US or, for that matter, Iran. But with both sides playing ‘chicken’, there is a real risk that a single incident will turn into an all-out war. The US cannot afford a military conflict with any Arab entity—including the Houthis—while Israel is savaging Gaza. Not without serious blowback.
Reading list
Al Jazeera has all the details on the US-Houthi battle in the Red Sea. BBC News has a good explainer on the Houthis. Washington Post is excellent on the Iran-led ‘axis of resistance’. CNN and The Guardian have more on the risks of a regional war. The New York Times looks at the competing pressures on the Biden White House—in its efforts to contain the Houthis. For effects on global trade, read BBC News, Deutsche Welle and Asia Nikkei. Read our Big Story for more on the ‘new’ Middle East.
