On Monday (July 20), Iran-backed Houthi rebels rebelled in Yemen DESIGNATED they would impose a “naval embargo” on Saudi Arabia, in what could mark a dangerous escalation in ongoing conflict between the United States and Iran.
The Houthis have TOLD they plan to target Saudi Arabian ships traveling through Bab al-Mandeb Straitalso known as the “Gate of Tears”, which connects the Red Sea and the Gulf of Aden.
This escalation threatens to have a significant impact – particularly for Saudi Arabian crude traveling through the Red Sea, much of which has recently been diverted there to avoid the Strait of Hormuz.
In one STATEMENTSaudi Arabia’s foreign ministry expressed the country’s “strongest condemnation” of the threats and said it would take “all necessary measures” to protect its ships. It is not clear how effective this approach will be.
And as we’ve seen in the past, threats alone can be enough to disrupt the flow – and cost – of shipping activities in the Red Sea.
‘Gate of Tears’
The Bab el-Mandeb Strait, whose name means “Gate of Tears” in Arabic, is a narrow waterway located between Yemen in the northeast and Djibouti and Eritrea in the southwest.
Together, the Bab el-Mandeb Strait, the Red Sea and the Suez Canal form a vital maritime channel for global shipping, connecting nations in Europe with those in Asia and the Pacific.
Around 10-12% of global maritime trade passes through the Bab el-Mandeb strait each year.
Saudi Arabia’s “Plan B”.
This year, the Red Sea has become even more important to global shipping – and Saudi Arabia.
Saudi Arabia is one of the largest oil producers in the world. China is the biggest buyer, but other big buyers in Asia include Japan, South KoreaIndia and Singapore.
With severe and ongoing disruptions in the Strait of Hormuz, which normally carries about a fifth of the world’s oil and gas, Saudi Arabia has diverted exports to the Red Sea to bypass it.
The country’s east-west oil pipeline, linking Abqaiq in the east with Yanbu on the Red Sea, was restored to full capacity at the beginning of this year.
The port in Yanbu is said to handle now more than 70% of Saudi Arabia’s crude oil exports.
The greatest danger in the Red Sea
At this stage, the Houthis have only declared a blockade Ships of Saudi Arabia – not a “closure” of the transport corridor to all traffic.
If the maritime blockade through the Red Sea is extended further to other countries, global trade in manufactured goods, retail products, electronics and machinery could be severe. CONCERNED.
To avoid the Red Sea, ships may use an alternate route around South Africa Cape of Good Hope. This is one much longer and more expensive roads.
Potential trouble for inflation
Insurance costs for ships transiting the Strait of Hormuz have risen since the start of the conflict, reportedly now ranging from 3–10% of hull value (the value of a ship itself, not the cargo). This additional insurance can add millions of dollars to each shipment.
Insurance expenses for ships transiting the Red Sea are said to have been already erected in the wake of the Houthis’ announcement.
Ultimately, higher insurance costs for shipping are usually passed on to end consumers. This could add to inflationary pressures around the world.
What’s on the horizon?
We do not yet know how effective a Houthi blockade of Saudi Arabia will be. Not even if the situation will escalate further from here.
For countries around the world, this new naval blockade is likely to dampen hopes that the economic disruption from the Middle East conflict will soon end.
Businesses and governments must continue to examine their supply chain resilience and consider long-term alternatives for securing and shipping key commodities, including oil.
Moving forward, it is also important to reduce dependence on fossil fuels and continue the transition to renewable energy for transport, logistics and manufacturing.
Sanjoy Paul is Associate Professor in Operations and Supply Chain Management, UTS Business School, University of Technology Sydney
This article was reprinted from Conversation under a Creative Commons license. Read on original article.
