Due to the Houthi rebel attacks on the Red Sea, shipping companies transiting the Red Sea are now rerouting through the Cape of Good Hope. This will significantly impact global trade because ships are now taking the longer route. This disruption in logistics is significantly causing a spike in shipping cost. This change adds over 5,000 nautical miles and several weeks to the transit time from Europe to Asia.
Economic Impact
This escalation by the Houthi rebels has currently caused a spike in oil prices, which will lead to an increase in energy tariffs, and the increase in shipping cost will also cause an increase in the price of goods. Industries, particularly automotive, are closely monitoring potential supply chain disruptions. Although the immediate impact of this unforeseen supply chain disruption this Christmas is minimal due to prestocked inventory.
The Strategic Suez Canal
The Suez Canal, a 192km waterway connecting Asia and Europe, is a key route for global container, oil, and LNG shipments. The Suez Canal’s importance to global oil trade and the Egyptian economy cannot be overemphasized because of the significant revenues generated from tolls. Following several attacks by the Houthi rebels on the Red Sea, the Suez Canal authority noticed a significant change in shipping patterns, with major shipping companies opting for alternative routes. This action is a clear breach of the right of innocent passage of ships. Historically, the canal has been a focal point of geopolitical tension, leading to its closure in 1956 and 1967, highlighting its strategic significance in international trade and politics.
