Houthi Threats: Impending Economic Costs for the Global Economy

The crisis in the Middle East has reached a critical point, with potential consequences for the global economy and regional stability. The Houthis, a rebel Shi’a group in Yemen, have successfully disrupted shipping through the Red Sea, escalating their attacks on commercial ships over the past week. The rebels have even fired anti-ship ballistic missiles, hitting one ship for the first time ever. These attacks are aimed at pressuring Israel to suspend its campaign in Gaza.

In response to the escalating attacks, five of the largest shipping firms have announced that they will redirect their container ships away from the Bab al Mandab strait, a strategic waterway that handles over 10% of global commerce and is a crucial passage to the Suez Canal. As a result, traffic through the Red Sea has already dropped by 35%, imposing additional costs and complicating shipping at a time when the Panama Canal is also facing troubles. If the Houthis continue their blockade, the costs to consumers and the impact on local states will be significant.

The closure of the Red Sea would particularly impact Europe and states on the Mediterranean, as well as countries in North Africa that heavily rely on the Suez Canal for Asian trade. Egypt, in particular, would suffer greatly, as transit fees through the Suez Canal account for a significant portion of its currency earnings. Additionally, a long-term disruption of traffic through the Red Sea would affect energy prices, especially for consumers in Europe, as a significant amount of oil passes through the Suez Canal.

The purpose of the Houthi attacks is to pressure Israel into ending its offensive in Gaza. The group wants to increase international pressure on Israel, using the Red Sea as a pressure point. As long as Israel remains at war, it is likely that the Houthis will continue their attacks. The Houthis, backed by Iran, are heavily equipped with advanced weaponry and can sustain their campaign for a long time.

Dealing with the Houthis poses a challenge for the U.S. and the international community. Unlike Hezbollah, another Iran-backed group, the Houthis are not facing an immediate threat and have reached the brink of victory in their war with Saudi Arabia. The U.S. is currently focused on increasing the international naval presence around Yemen to deter or intercept new Houthi attacks. However, a sustained air campaign against the Houthis would risk escalating the regional crisis and involving Iran directly.

Nevertheless, the Biden administration may face increasing pressure to take action as long as the Houthi attacks and their disruptive effects continue. The situation in the Middle East remains tense, and the global economy hangs in the balance.