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Since October 7th, Houthi militants in Yemen have been targeting commercial cargo ships in the Red Sea, severely disrupting maritime trade.

The Iranian-backed group is using drones to attack vessels that they believe are delivering goods to Israel, forcing ocean carriers like MSC and Hapag-Lloyd to to cancel and detour routes originally meant to pass through the Red Sea.

These strikes are occurring in the crucial Bab al-Mandab Strait, which connects the Red Sea to the Arabian sea, and is bordered by the Yemen on one side and Djibouti and Eritrea on the other.

The Houthis, a Shiite minority sect in Yemen, wrested control of large portions of the country, including the capital Sanaa and a key Red Sea port, Al-Hudaydah, from the Saudi Arabian-backed Sunni government in 2014.

Their latest attacks are pushing shipping companies to avoid the Red Sea, in turn preventing access to the Suez Canal, through which nearly 12% of global maritime trade passes through.

What do Houthi Attacks in the Red Sea Mean for the International Economy?

The world economy has already had a difficult two years, with inflation sparking a cost of living crisis across many countries.

Now, ships diverted from the Suez Canal will be forced to go around the Cape of Good Hope, much like trade did before the Suez Canal existed.

This longer journey increases fuel costs, reduces shipping efficiencies, and could raise the prices of imported goods, which includes critical shipments of grain from Asia and oil from the Middle East.

The price of Brent Crude has already climbed 8% in the last week.

Source: TEC Container Solutions.

Meanwhile, operators of the Panama Canal, another key shipping lane, have had to reduce traffic through the passageway due to a prolonged drought in the country, also disrupting global shipping.

In response to the Houthi attacks, the U.S. has recently announced a defense coalition leading nine other nations that will work together to strengthen security in the area.

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