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Houthi Attacks on Red Sea Shipping Routes Put China in a Pickle

This illustrative image from November 22, 2023 shows the Galaxy Leader cargo ship, seized by Houthi fighters two days earlier, docked in a port on the Red Sea in the Yemeni province of Hodeida. China's Cosco has become the latest shipping firm to suspend its routes through the region.

Posted on January 10, 2024

Chinese state-owned shipping firm COSCO has become the latest company to suspend its routes to Israel through the Red Sea due to the threat of Houthi attacks, it has been reported.

The Yemen-based Houthis have launched a series of anti-ship ballistic missiles towards Red Sea shipping lanes which they say is in response to Israel’s military offensive against Hamas.

The tensions in the region have already prompted Danish shipping company Maersk to suspend its passage through the Red Sea and the Suez Canal. Other shipping firms, including Hapag-Lloyd, Evergreen Line and MSC Mediterranean Shipping Company, have also stopped their routes through the waters.

Israeli business news outlet Globes reported that COSCO, the fourth largest shipping line in the world, had stopped visits to Israeli ports despite its ships not being at great risk in the Red Sea because of China’s strong ties with Iran, which backs the Houthi rebels in Yemen.

Orient Overseas Container Line (OOCL), which is a part of COSCO Shipping Group, had already suspended sailing to the Red Sea since December, CNBC reported. Newsweek has contacted COSCO for comment.

The decision by the Chinese-state owned firm is significant because it works with Israeli shipping line ZIM, which will have to operate more ships on the Far East routes, Globes reported. Also affected will be Israel’s Haifa Bayport, which is operated by another state-owned Chinese company, SIPG, and is dependent on the many COSCO ships that sail there, the publication added.

However, ZIM told CNBC that its Tyrrhenian Container Line Service, connecting Israel, via France and Italy, would continue its operations.

“China has a powerful interest in maintaining global shipping but it is not yet willing or able to send its navy to contribute to multilateral efforts to restore order in the Red Sea,” Matt Gerken, chief geopolitical strategist at BCA Research, told Newsweek.

“China’s shipping companies will avoid the area like other shippers until the U.S. and its allies restore the freedom of navigation, which will not take long,” he said.

COSCO is responsible for almost 11 percent of shipping market share and Hong Kong-listed shares of the Chinese firm were down 3 percent on Monday.

Attacks on ships in the Red Sea have pushed ocean freight rates higher as shippers reroute the long way around South Africa’s Cape of Good Hope instead.

A research briefing by analysis firm Oxford Economics shared with Newsweek has predicted that the disruption caused by maritime attacks on ships in the Red Sea will be relatively short-lived and that sea freight prices will reverse.

However, it noted that rerouting vessels traveling to the Netherlands from Taiwan, the self-governed island off the coast of China, adds around nine days to a journey which could have a “considerable” cumulative effect on global shipping capacity.

“If the Red Sea were to remain closed to shipping for several months, however, and shipping freight costs stayed around twice the level of mid-December, this could add 0.7ppts to annual CPI inflation rates by the end of 2024,” the analysis by Oxford Economics said.

The U.S. announced a new international maritime task force in the Red Sea last month to try to protect commercial vessels from attacks by the Houthis. The U.S. also joined 10 other countries last week in warning that if the Iranian-backed group continued to attack shipping, it would “bear the consequences”—suggesting the threat of military action against targets in Yemen.

Gerken believes the problem for the global economy and financial markets is not the Houthis but the escalation of the proxy conflict between Israel and Iran.

“Once the conflict spreads to Iraq or the Persian Gulf area, then there will be a high chance of major shocks that kill global demand,” he said.

An escalating conflict will cause financial market volatility not just in the short term as the Red Sea is quickly cleared, but in “the coming months and years due to Israel’s insecurity and Iran’s dual attempt to expand regional influence and obtain nuclear weapons.”


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