Events in the Red Sea are reinforcing the case for “re-shoring” or “near-shoring” (where possible).
The Financial Times (my emphasis added):
Global shipping companies have halted journeys through the Red Sea because of the threat of attacks by Yemeni rebels, in moves that could disrupt vital trade through the Suez Canal.
AP Møller-Mærsk, which operates the world’s second-largest container shipping fleet, said on Friday it had instructed all vessels due to pass through the Bab-el-Mandeb strait to “pause their journey until further notice”.
The strategically important strait, which connects the Red Sea and the Gulf of Aden, runs past Yemen and there have been more than 10 attacks on ships in the area by the country’s Iran-backed Houthi rebels since the outbreak of the Israel-Hamas war. . . .
The attacks risk disrupting the global supply chains that pass through the Red Sea and the Suez Canal, the waterway that accounts for 30 per cent of all container ship traffic and is a vital conduit for crude oil shipments. . . .
Shipowners have already called this month for protection for maritime routes in the region and the Pentagon has said a US warship also came under attack off the Yemeni coast.
The fading of the Pax Americana has consequences.
Marco Forgione, director-general at the Institute of Export & International Trade, a professional body providing support to business, said the developments “could not come at a more difficult time for global supply chains”.
He noted that there were already severe shipping delays through the Panama Canal because of drought.
“This impacts every link in the supply chain, from producer right down to end user, and will only increase the chances of critical products not making their destinations in time for Christmas,” said Forgione of the companies’ decisions. “All eyes now will be on other shipping firms to see if they follow suit.”
Tom Sharpe, writing in the Daily Telegraph:
Initially, attacks in the region were aimed at “ships connected to Israel”, no matter how tenuous. This then became “ships heading to Israel”, and then, predictably, seemingly random. . . .
Some shipping companies are already routing their ships the long way around, via the Cape of Good Hope, and insurance premiums are increasing. The Egyptians, whose economy depends on the Suez Canal and therefore this strait remaining open, are raising fees for passing through the canal next year. They know what’s coming.
It will be worth watching insurance rates. Should they rise too high, they will force ships to take the long route.
The Red Sea is a microcosm of the world’s oceans today. The global trade system is trembling at its very foundations, with increasingly assertive regional powers seeking to limit freedom of navigation, and flex their muscles on the international stage.
To see this, we need only look a little further away, to the opening of the Persian Gulf and the Strait of Hormuz. Somewhere around a fifth of the world’s total oil consumption flows through this stretch of water; no-one should be in any doubt as to its importance for the world economy.
Right now, things there are quiet. But only a few months ago, Iranian behaviour there was becoming so provocative, with its naval forces attempting to seize merchant vessels, that the US military considered deploying armed sailors and marines on transiting vessels.
Now, despite the Iran-sponsored chaos in the Red Sea, the Strait itself is quiet. The looming presence of the nuclear powered aircraft carrier USS Dwight D Eisenhower and her accompanying strike group may have something to do with this, but it is also worth remembering that Iran has spent billions of dollars to ensure that it could close the Strait if it needed to.
The Strait of Hormuz, like the Bosporus between the Black Sea and the Sea of Marmara, has no competing route. If this oil and gas is to travel by sea, it must travel through this gap. For now, the flow of hydrocarbons remains relatively unhindered but, given everything else that is going on, and who is behind much of it, I would be surprised if this remains the case.
In the Bosporus, however, things are brighter. Putin’s Black Sea fleet has taken a brutal beating at the hands of Ukrainian forces and the humanitarian corridor hugging the coasts of NATO members Bulgaria and Romania is back in use.
The question is whether the West could match this performance in the Strait of Malacca. Some 40pc of all world trade passes through this 500 mile long stretch between Sumatra and Malaysia. While the Sunda, Lombok and Makassar straits offer alternatives, it is extremely likely that war with China over Taiwan would see the Malacca Strait become a major theatre…
While the degree to which China, Russia and Iran are actively colluding is open to debate, it is clear that there is a sustained effort to disrupt the flow of trade worldwide. Delays, disorder, risk and increased costs are among the first steps for challenging the current world order.
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