After a ceasefire in Gaza, they may continue their Red Sea racket
Image: AP
“IT’S A REALLY, surprisingly user-friendly experience,” says Stephen Askins, a shipping lawyer, of his interactions with the Houthis, the militia that has been attacking commercial ships in the Red Sea for more than a year. “You write to them, respectfully. They write back, respectfully, and wish you a happy passage.”
Not everyone is greeted cordially. In 2024 the Houthis took aim at almost 200 vessels, damaging more than 40, and attacks have continued into 2025. With Iranian weapons and Russian intelligence, the Yemeni rebels partly control what enters Bab al-Mandab, at the mouth of the Red Sea, and thus the Suez Canal through which 12% of world trade normally flows. Not since the second world war have merchant ships faced such peril.
SAUDI ARABIA
Red Sea
SUDAN
YEMEN
ERITREA
Houthi
control
Bab al-Mandab Strait
DJIBOUTI
Gulf of Aden
Somaliland
ETHIOPIA
Sources: Global Maritime Traffic; MarineTraffic; ACLED; Liveuamap
Red Sea
SAUDI ARABIA
YEMEN
Houthi
control
Bab al-
Mandab Strait
DJIBOUTI
Gulf of Aden
Somaliland
ETHIOPIA
SOMALIA
Sources: Global Maritime Traffic; MarineTraffic;
ACLED; Liveuamap
SAUDI ARABIA
Red Sea
YEMEN
ERITREA
Houthi
control
Bab al-Mandab Strait
DJIBOUTI
Gulf of Aden
Somaliland
ETHIOPIA
Sources: Global Maritime Traffic; MarineTraffic; ACLED; Liveuamap
Somalia
SAUDI ARABIA
Red Sea
YEMEN
SUDAN
ERITREA
Houthi
control
Bab al-Mandab Strait
DJIBOUTI
Gulf of Aden
ETHIOPIA
Somaliland
Sources: Global Maritime Traffic; MarineTraffic; ACLED; Liveuamap
In September 2023, a typical month for shipping before the aerial attacks, around 2,000 vessels travelled through the Bab al-Mandab in one direction or the other.
On November 19th 2023, the Houthis hijacked their first ship: the Galaxy Leader. It flew the Bahamian flag, but the rebels pointed to its ties to an Israeli billionaire. They took its 25 crew members hostage.
The Houthis control most of Yemen’s western coast, affording them prime access to ships on either side of the narrow strait. Their attacks involve a mix of hijacking attempts and shore-to-ship missiles.
These have had a profound impact on shipping. By September 2024, cargo volumes in the strait had fallen by more than two-thirds. Ships sailing between Europe and Asia have been forced to take longer routes.
To get a sense of how the Houthis operate The Economist has interviewed two dozen participants in the Red Sea drama including representatives of the militia, naval officers, insurers, shipping firms and diplomats. We have also analysed satellite-tracking data and vessel ownership records. The picture that emerges is one of dramatic change. Cargo volumes in the strait have fallen by two-thirds, the ultimate nationality of vessels has shifted, container routes have been redrawn and the costs to the global economy amounted to some $200bn in 2024. The other finding is that the Houthis are surprisingly sophisticated, are exploring new weapons technology—and are in it for the long run.
The ceasefire in Gaza on January 15th will probably lead to a lull in attacks, given that one of the Houthis’ notional motivations is solidarity with the Palestinians. Yet few people involved in the Red Sea crisis believe it will eliminate the Houthi threat. Their capabilities remain intact and Yemen will remain a failed state. Their ideological motivation extends far beyond Gaza: they have attacked other targets including the Gulf Arab states. And having created a successful new business model to extract lucrative rents from global trade, they have a strong incentive to continue to act as gatekeepers to Suez.
Throughout 2024 the Houthis forced ships to divert around Africa. Journeys from Asia have lengthened by 3,000-3,500 nautical miles (6,000km), or 10-14 days. Containers are lost to the choppy southern waters. Longer transits at faster speeds burn more fuel, adding $1m in costs per voyage, according to an American-intelligence brief. Still, that is cheaper than using the Red Sea, where insurance prices have shot up 20-fold, says Thomas Nordberg, of The Swedish Club, an insurer.
Chart: The Economist
The cost to the global economy is reflected mainly in higher freight rates and days lost. The price of sending a container from Shanghai to Rotterdam peaked in July at $8,200, a five-fold increase on the average figure in 2023, and global freight costs remain high (see chart 1). Accounting for global container volumes, Houthi attacks added at least $175bn to shipping costs in the ten months to October 2024. The entire global container market was worth around $122bn in the same period in 2023. Higher prices for shipping oil and gas, as well as dry bulks like wheat, make the overall bill probably bigger still. For now, shipowners are raking in profits as longer transit times soak up capacity. Maersk, a Danish shipper, reported $3.3bn in operating profit in the third quarter, up from $0.5bn a year before.
For the most part, supply chains have proved resilient. Spare shipping capacity, ordered during the supply crunch of 2021-22, prevented shortages, says John Stawpert of the International Chamber of Shipping, an industry body in London. And since freight costs account for just 3% of an average finished product’s value, even big increases have not sparked inflation.
The fiscal costs are more pointed. A drop in the number of ships using the canal has cost Egypt $7bn in revenue, equal to a third of its current-account deficit. Navies from America, Britain and the EU patrol the Red Sea. In all, America has spent almost $5bn trying to protect shipping.
Chart: The Economist
Some firms and countries are benefiting. Though the number of ships going through the strait has fallen by half, Chinese transits have increased and now make up a fifth of the 800-900 ships still transiting the Red Sea each month, according to an analysis of satellite data and ownership records (see chart 2). Most of the crude oil going through the Suez Canal is Russian, up from less than half (see chart 3).
China has friendly ties with Iran, the Houthis’ main source of money and weapons, and Chinese vessels are not on the Houthis’ list of targets This creates a geopolitical arbitrage. Whereas American and British firms face insurance premiums of up to 2% of a vessel’s value. Chinese boats are reportedly paying as little as 0.35%, since their risk is lower.
Chart: The Economist
On January 15th the Houthis stated that their strikes on shipping would halt following a Gaza ceasefire, according to reports by Mohammed Albasha, an analyst of Yemen. But its leaders attached onerous conditions, including a complete cessation of “all Israeli military activity” and an end to all Western military strikes on Yemen. Many observers are sceptical that the Red Sea shakedown will end. The Houthis have been negotiating with Saudi Arabia to end their decade-long conflict. Whenever the Saudis offer concessions, the Houthis ask for more. Now they have a weapon that can disrupt world trade, they might put it to other uses, distracting Yemenis from worrying about their miserable economy.
The temptation to keep firing
Before the ceasefire Maersk said it expected the Red Sea to stay closed “well into 2025”, a view reflected in analysts’ profit forecasts for shipping majors. Though attacks have slowed recently, a rebel official says this proves the blockade is working. “The number of sanctioned vessels transiting the Red Sea”, he says, “has declined significantly.” It is also lucrative. A panel of experts told the UN Security Council in November that a few “shipping agencies co-ordinate with a company affiliated with a top-ranking Houthi leader” to buy safe passage. “There’s clearly some deal-cutting,” says Tim Lenderking, America’s special envoy for Yemen.
The UN experts reckon the fees are worth $180m a month, or $2.1bn a year. In effect, that doubles the Houthis’ income, though others in the industry, including Mr Askins, question these numbers. Such protection, if paid for by every vessel that entered the strait in December, would cost more than $200,000 a voyage, which would make it financially unviable for some. Though the Houthis admit asking shipowners to apply for “permits”, claims that they are charging “illegal fees” are “purely fabricated”, says a Houthis spokesperson.
Even if this is true, any agreements struck with the Houthis by firms or governments risk legitimising the principle that littoral states can interfere with traffic on the high seas. America and its allies strongly oppose leaving “vital waterways in the control of any non-state actor, let alone the Houthis”, says Mr Lenderking. Such sentiments are echoed by Arsenio Dominguez, the boss of the International Maritime Organisation, a UN agency. “I don’t want the situation of the Red Sea to become the new normal,” he says.
Yet few countries seem willing to do what is needed to prevent this. America’s resources are stretched thin. Little of its own trade passes through waters threatened by the Houthis. Regional powers with much at stake, such as Egypt, Saudi Arabia and the United Arab Emirates, have generally kept their navies away to avoid being seen to be supporting Israel. The EU has set up Operation Aspides to protect the waterway and its commander is urging shipping companies to return to it. But Aspides lacks muscle and has escorted less than half the ships that have asked for help; some were advised to go faster and zigzag. Even some NATO warships take the long way home around Africa from Asia.
Although officials in Beijing have told American diplomats that they support freedom of navigation for all, they appear to have an arrangement with the Houthis, brokered by Iran, to protect their own ships. Moreover, China has ignored American requests to enforce sanctions on the Houthis, who are doing “a brisk trade” with some Chinese firms to feed their war effort against Israel, says Mr Lenderking. America has imposed sanctions on several Chinese firms and one Chinese person for providing the rebels with technology for missiles and aerial drones, and for giving them access to international finance. “If we’re going to get serious about reimposing order in the Red Sea,” he says, they must “choke off those supply chains.”
Yet despite the efforts of America and its allies to restore security, it seems likely the Houthis will continue to exert control over the Red Sea as they please. They have opened the creatively named Humanitarian Operations Co-ordination Centre, which offers a “safe-transit service”, according to a Houthi official. The centre, he added, “is always ready to respond to any inquiries or provide advice”. ■
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