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

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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