Red Sea has been witnessing attacks from a group named Houthis. On 19th November Israel owned cargo ship ‘Galaxy Leader’ was hijacked by Houthis in the Red Sea. The ship was travelling from Turkey to India.
This incident is on the verge of putting the entire world economy on the edge of disruption because the Houthis have not only attacked on one or two vessels, but there have been 37 attacks on the commercial ships using drones and missiles.
This blog aims to explore about the Houthi rebels, the significance of the Red Sea, the impact of the Red Sea crisis on the global economy, with a focus on its consequences for the Indian economy and the maritime security initiatives implemented by the nations for safeguarding the Red Sea region.
Let’s first understand who are these Houthi rebels and why are they attacking the ships in the red sea?
The Houthis, often referred to as Ansar Allah, or the “Supporters of God,” are a complex and influential political and military group of Yemen emerged in the 1990s in opposition to then-President Ali Abdullah and to fight against the corruption in the country. The bulk of Yemen’s northern part and the capital city Sanaa is under the control of Houthi rebels.
Just as the Taliban was used by the United States as a proxy Army to fight the Russians in Afghanistan even the Houthis are being used by Iran to fight its enemies. The Houthis are backed by Iran in Yemen while the Yemeni government is supported by the Saudi Arabia and United States. Thus, today they are entirely hostile to Israel, the United States and western allies. And because Russia is Iran’s ally the Houthis are not attacking Russian ships at all.
Until November, they were targeting only those ships that were either owned by Israelis or headed towards Israel to support the Palestinian militant group Hamas. They want to prevent Israeli ships from navigating the Red Sea until the Israeli aggression against Palestinian people in the Gaza Strip stops.
But now according to the several reports they are targeting ships of other countries to exert pressure on those countries to stop Israel from attacking Palestine.
Significance of the Red Sea
The Red Sea region holds immense significance in global trade due to its strategic location as a major shipping route. Around 12% of global trade passes through this region, making it one of the busiest and most vital maritime corridors. The Red Sea connects the Mediterranean Sea with the Indian Ocean, serving as a critical link between Europe and Asia.
This critical route has two choke points one is Suez Canal and the other is Bab el-Mandeb strait which is only 26 km. The Houthis are so strategically placed that they can block the access of the Red Sea at the Bab el-Mandeb strait which can cause a disaster in the world trade. This region is so significant that $1 trillion worth of goods pass through it annually. Approximately 7–10% of the world’s oil and 8% of liquefied natural gas are transported over this waterway.
The Suez Canal is the shortcut from Asia to Europe but if the region is blocked then the ships will have to travel all the way down to Cape of Good Hope and then go around Africa to Europe adding another 8,900 km to the shipping route and 2 more weeks to the shipping time. Hence, Red Sea is crucial because it saves both cost of fuel and time.
This route is very important for India as it is vital for our energy needs and because 20% or $200 billion worth of our exports pass through this pathway. Many other countries also have their important imports and exports passing through this Bab el-Mandep strait. This conflict will disrupt the trade of all countries who ship their goods through the Red Sea. This is how Houthi rebels are creating a pressure on all nations across the world to stop Israel from continuing their attacks on Gaza.
Understanding the Red Sea War’s Impact on the Global and Indian Economy
The insurance cost for the voyage of the ships have increased because the ships using this region will be at risk. The insurance cost has shot up from 0.2% per voyage to 0.5% per voyage. Hence, for a vessel costing $100 million the insurance cost has gone up from $200,000 to $500,000 which means that cost of shipping has also increased by 60%.
The traffic in the Red Sea has dropped by 40% over the last few weeks which means that these 40% of the ships are going through the Cape of Good Hope leading to the increase in shipping cost due to increase in both time and cost of fuel.
The largest traffic jams called the Panama crisis is also taking place. The Panama Canal is the strait between North America and South America which allows 6% of the world’s maritime trade to pass through it. Nearly 40 ships pass through this canal on daily basis but as of December 50% of the ships have stopped using this route because large ships won’t be able to sail in this region since the depth of the sea has gone down from 27 m to below 25 m due to less rainfall and these large ships require a minimum of 26 m to operate. This is the reason why huge containers vessels have to use an alternate route which is via Bab el-Mandeb strait and Suez Canal and this had already increased the shipping cost from China to USA by large extend. But now due to the impact of Houthi rebel attacks the ships will have to take the route via Cape of Good Hope and then go to USA which has highly impacted the world trade.
Red sea attacks could cost India $30 billion. Due to longer shipping routes to Europe and US the overall shipping cost of Indian goods to these markets has already increased by 20% to 40% and the European Union is India’s second largest export market after the US. Hence the slowing demand from Europe will impact India’s labor-intensive sectors such as textile, gems and jewelry exports. Kanpur exports leather, plastic and spices worth 300 crores every month to Europe but now because of the attacks on cargo ships in the Red Sea and the Israel-Hamas conflict, exporters in Kanpur are withholding export consignments valued at ₹100 crore. Alternative routes have resulted in a 35% rise in freight prices, and shipping companies have declined to offer insurance coverage. Also, the attacks on the ships by the Houthi rebels could raise the price of Indian basmati rice exports by 15% to 20%.
Maritime Security Initiatives
The US has launched Operation Prosperity Guardian in December 2023 which is a multinational maritime security operation to deter Houthi attacks and protect freedom of navigation in the Red Sea. The US Navy has deployed several warships and aircrafts to the region, conducting patrols, escorts and intelligence gathering.
The 10 nations taking part in Operation Prosperity Guardian are part of an international defense group designated as Combined Task Force-153.
India’s maritime forces are also securing the region with their latest missile destroyers, drones and more marine commandos. Indian Navy has been safeguarding the region and it is among first responders to attacks and hijackings. On 16th December a Malta flagged vessel, MV Ruen with 18 crew members on board was hijacked in the Arabian sea by the Somali Pirates. The Indian Navy was the first to respond to their mayday message and INS Kochi was diverted towards the hijacked vessel for rescuing the crew members from the ship.
A Gabon-flagged commercial tanker named MV Sai Baba carrying 25 Indian crew members came under a drone attack in the Southern Red Sea.
The merchant vessel MV Chem Pluto, with around 21 Indian crew members, was hit by a drone about 200 nautical miles southwest of Veraval, Gujarat, in the Arabian sea. The Indian Navy directed its latest missile destroyers to secure the vessel.
On 4 January 2024 two “Israeli ships” were attacked in the Indian ocean. The two ships were Chem Silicon and Pacific Gold.
India has not joined U.S. led Anti-Houthi Coalition but has increased surveillance. Presently, Sri Lanka has become the first nation from South Asia to join U.S. task force. Singapore is also contributing to the Operation Prosperity Guardian.
India has deployed 10 warships in the Arabian sea and the Gulf of Aden for safeguarding the region. The warships are guided- missile destroyers such as INS Kolkata, INS Kochi, INS Chennai and INS Mormugao etc. India navy has also deployed surveillance aircraft P-8 in the Arabian sea. The navy is also coordinating with Indian Coast Guard (ICG) for enhanced surveillance within India’s Exclusive Economic Zones (EEZ).
Let me know if you have any queries. And lastly here’s a question for u all – How can global trade adapt to mitigate risks posed by the conflict?