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Global Trade, Security, and Diplomacy Amid the Red Sea Crisis

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Since October 2023, Houthi rebels based in Yemen have escalated their attacks on shipping vessels in the southern Red Sea. These attacks have caused significant disruptions to global trade and raised security concerns in the region. The attacks in the Red Sea combined with the ongoing war between Israel and Hamas have proven to be a multifaceted issue that the US and its allies must face. We asked Ambassador Sally Shelton-Colby and SIS professors Daniel Bernhofen and Joshua Rovner to share their expertise and break down the impact these attacks have had on global trade, security, and diplomatic relations in the region.

Setting the Stage for Attacks

The Red Sea plays a crucial role in international shipping due to its connection with the Suez Canal. The canal, operational since 1869, is a vital route for East-West maritime trade, with about 30 percent of the world's global container traffic passing through the Red Sea and the Suez Canal. The recent attacks by Houthi rebels have made this passage increasingly unsafe, affecting shipping and trade dynamics.

The Houthi rebels' targeting of ships in the Red Sea is rooted in their alliance with Iran. Iran claims that these attacks are in response to Israel's actions in Gaza. As a result, Iran aims to raise economic costs for Israel and its partners by using the Houthi attacks as a tool to challenge Israel and respond to perceived US Navy actions against Iranian oil tankers, according to security expert Joshua Rovner.

“Iran’s support of the Houthis is a way of publicly challenging Israel while controlling the risks of escalation,” Rovner said.

Impact on Shipping and Trade

The impact of these attacks on global trade has been substantial. Shipping through the Suez Canal has decreased dramatically, with China experiencing a significant drop in maritime trade with Europe. The risks posed by the attacks have prompted shipping companies to take a longer shipping route around the Cape of Good Hope, leading to increased freight insurance costs, longer delivery times, and potential shortages resulting in price hikes, according to global shipping and trade expert Daniel Berhnofen. 

“Ninety-nine percent of China's maritime trade with Europe went through the Canal until the end of November,” Bernhofen explained. “Since then, the number has dropped to 40 percent because of the risks of being attacked. It’s now more economical to take the longer route, although it takes, on average, two weeks longer.”

Beyond the concerns around shipping safety, concerns have also been raised about potential supply chain disruptions similar to those witnessed during the COVID-19 pandemic. According to Bernhofen, while delays are occurring, the current era of shipping benefits from more available shipping capacities, as well as alternate shipping routes which have mitigated some of the potential economic fallout.

National and Regional Security Concerns

The Biden administration officially placed the Houthis on the list of Specially Designated Global Terrorists on January 17, 2024, after the attacks in the Red Sea escalated. This designation allows for sanctions to be placed upon the group but includes exemptions for food, medicine, and humanitarian deliveries, as Yemen continues to face a humanitarian crisis.

“While this designation allows for targeted sanctions, it can also be reversed if the Houthis cease their campaign. The White House hopes that the combination of sanctions and air strikes will lead to concessions,” said Rovner.

In response to the attacks, the United States has launched a coalition named Operation Prosperity Guardian, consisting of 23 countries. This coalition aims to protect shipping in the Red Sea, defending against missile and drone attacks with the hope that successful defense will ensure the freedom of navigation and discourage the Houthis from continued attacks.

“Since the end of the Cold War, the United States has increasingly turned to multilateral coalitions because broad international support helps to justify its actions,” said Rovner. “The diplomatic benefits are especially important given that the Biden administration is acting to preserve international norms like freedom of navigation, not just narrowly defined national interests.”

Diplomacy Amid Conflict

While the coalition seeks to protect shipping vessels and global trade routes, its creation and operation were not without challenges. Some nations have been hesitant to join the task force publicly due to diplomatic relations and commercial ties with Iran. This situation reflects the delicate balance that countries must strike between protecting their national interests and participating in collective security efforts.

The United States is also seeking to find a balance amid this conflict, as it has several key allies and military bases in or around the Red Sea region. “For most of the last half-century, the US has had excellent relations with most of the Arab countries,” Ambassador Sally Shelton-Colby said. “ A number of those countries depend on the US presence to reinforce their own security capacity.”

As the effects of the attacks in the Red Sea continue to be felt around the world, many nations have looked to China for help in stopping this campaign. While China’s shipping and trade have been affected by the attacks, it has not shown any interest in stepping into the role of mediator with Iran and the Houthis.

“The China-Iran economic relationship is robust, and both share similar geostrategic interests; that is to say, they both view the world as ‘unfairly’ dominated by the US and Western values,” said Shelton-Colby. “Because of this mindset, China does not wish to jeopardize its relations with Iran by participating in US-led attacks on Iran and its proxies.”

As the conflict stretches on, the US and the coalition continue to place economic and military pressure on the Houthis and Iran in hopes of ending the attacks in the Red Sea while mitigating the effects on global trade, security, and diplomacy.