Waiting for the Red Sea crisis to play out as Trump's 'Musketeers" do their duty
 One thing about Donald Trump's threat of tariffs is that it produced much the same reaction from supply chains as did the Covid scare and the Houthi rocket attacks on Red Sea shipping.
Like the operational principle of outmoded homeopathic medicine, the mere hint of a specific threat caused patients to react decisively in ways that put them on the physiological defensive, and the road to recovery - or so homeopathic theory goes.
Thus, the Liberal Party in Canada pulled itself out of the pit of disgrace, having dumped its leader, rallied Canadian patriots to resist the Yankee tariffs with a vociferous calls for anti-American import substitution.
In a similar manner, the Covid scare promoted panicky shippers to ship as much as they could as soon as they could before the next edict from the health and safety bureaucrats ordered a lockdown.
Then we had Houthi insurgents rocketing ships in the Arabian Gulf and the Red Sea. Not that much, especially now that Houthis agreed only to attack Israel-linked ships after the Israelis declared a ceasefire in Gaza. But this assurance did little to dissuade marine underwriters from charging high War Risk premiums.
This diverted sent the bulk of Asia Europe trade around the southern tip of Africa on the Cape of Good Hope route.
Fortunately, for shipowners, not wanting to donate windfall profits from the Covid scare to taxes, they ordered new ships instead. They were built in such large numbers and sizes that being induced to take the safer Cape route was bearable if not exactly comfortable.
The Red Sea crisis remains crippling as long as insurers are not assured that all is well south of the Suez Canal.
Not only does Egypt forego its canal earnings the eastern Mediterranean ports are suffering severely.
Vessel traffic through the canal and Bab El-Mandeb Strait, which used to carry 30
per cent of world container traffic has since fallen by 60 per cent. Before the Houthi attacks, canal fees generated US$7 billion in 2022. In 2024, the revenue fell to $2.8 billion.
According to the World Bank, the Strait of
Hormuz, the world’s chokepoint for Arab oil between the Arabian Gulf and the Gulf of Oman, has suffered a 15 per cent drop in maritime traffic.
There is talk of a land route to avoid the war zones. Some use trucks from Dubai, through Saudi Arabia, Jordan to Haifa. But trucks carry very little compared to ships, so the land bridge will have little impact until a projected railway is built.
But it's an ill wind that blows no one good, and such a wind is the one that reduced Suez traffic to a trickle. Not complaining is the Port of Tanger-Med, whose container volume jumped 18 per cent year on year with increases stemming from Asia Europe ships rounding the Cape route.
When Suez was fully functional, and wayporting was a greater force than it is today, that role has since been taken by ports in the western Mediterranean. Thus, western Med hubs are thriving on redirected trade, while their eastern Med counterparts face steep declines.
Morocco's Tanger-Med is the largest in Africa with a handling capacity of nine million TEU and serves as a key gateway between Africa, Europe and the Americas.
But Egypt's Port Said at the northern entrance of the Suez Canal, and nearby Alexandria played a secondary wayporting role in terms of volume, but no longer.
Many important North American ports have shallow waters inaccessible to the mega ships in the Asia-Europe trade. Thus it was found convenient to drop off boxes at wayports such a Tanger-Med to be reloaded on smaller ships that ply the intra-Med and transatlantic trades for the last nautical mile.
The Chinese-operated Greek Port of Piraeus is doing well as Chinese ships appear to be unmolested by Houthis, who have held the capital Sana'a for more than 10 years in the long Yemen civil war.
Houthis are rebelling against the UN-recognised government of Saudi-backed President Rashad al-Alimi, who is also the chairman of the Presidential Leadership Council (PLC), a government based in the old British port of Aden. The Iranian-backed Houthi government is led by President Mahdi al-Mashat, who is also the chairman of the Supreme Political Council (SPC).
The key to resolving the Houthi's threat to Red Sea shipping is the resolution of the Palestinian problem.
Hawkish Israelis want to kill all who want to kill them, an option that might well win a Yes vote if a referendum were held. Then there is the fantastic, but attractive, Mar-o-Gaza option, modelled on US President Donald Trump's Mar-o-Lago resort in Florida. And then comes conventional favourite, the "two-state solution", which no one but wishful thinkers say it is anything more than a play for time to prolong the ceasefire.
The ceasefire was the result of air strikes
with high civilian casualty rates in both Gaza and Sana'a. Before this, defensive measures consisted of Iron Dome radar directed fire against incoming missiles, artillery and drones. The problem of attacking launch sites, widely recommended by laymen, is that with shoot-and-scoot rockets, shells and drones, the shooter is gone before what he has shot hits the target.
Within the Red Sea alone, Houthi forces have conducted 201 attacks on commercial vessels during this period, resulting in 12 fatalities. In a broader context, Houthi forces have been involved in over 2,300 conflict-related events across the region since October 2023, resulting in a total of 1,467 lives lost.
With the ceasefire in place, British and American vessels are steadily returning to the Red Sea. However, given the financial gains the Houthis have made by extracting payments from shipowners in exchange for safe passage, concerns remain that they could continue levering maritime disruptions as a long-term revenue source.
The peace dividend scenario was motivated by the hope of durable peace in the region on the heels of the ceasefire agreement and the resumption of normal traffic in the Red Sea.
More specifically, the World Bank offers three scenarios to assess the Houthi impact on the Red Sea shipping: In the baseline scenario, the crisis is assumed to last until October 2025, with year-on-year shipping trade growth from December 2024 to October 2025 mirroring those observed during the same period from December 2023 to October 2024.
Gradual recovery scenario assumes the crisis lasts until May 2025, after which shipping trade growth returns to the pre-crisis levels.
We shall see what we shall see. |
