Houthi attacks on Israel-linked ships in Red Sea to raise prices of Far East imports

Due to threat, global freight giants have halted Red Sea routes, diverting ships on longer, costlier voyage; shift set to impact Israel’s trade with Asia, as well as global trade

Sharon Wrobel is a tech reporter for The Times of Israel.

Iran-backed Houthis in Yemen publish a video showing how the group hijacked an Israeli-linked shipping vessel in the Red Sea on November 20, 2023. (Screen capture/X)
Iran-backed Houthis in Yemen publish a video showing how the group hijacked an Israeli-linked shipping vessel in the Red Sea on November 20, 2023. (Screen capture/X)

As Yemen’s Iran-backed Houthi militants step up assaults on Israel-linked ships, the world’s largest container freight companies have temporarily suspended sending their vessels through the Red Sea, threatening to shut down a key trade route of Israeli imports and exports from the Far East and their passage to Europe.

Since the outbreak of the war between Israel and the Hamas terror group on October 7, the Houthis – also known as Ansar Allah – have increasingly been staging drone and missile attacks on Israel-related or affiliated ships in the Red Sea. The armed militant group that controls much of northern Yemen has declared itself part of the “axis of resistance” of Iran-affiliated groups,

In a show of solidarity and support with Hamas, Houthi militant forces in Yemen, a proxy of Iran, have in recent days threatened to attack any ships with Israeli ownership or bound for one of the country’s ports, until Israel stops the war.

The indiscriminate threat prompted two more major shipping firms, Mediterranean Shipping Company and CMA CGM, on Saturday to cease passage through the Red Sea maritime corridor and Egypt’s Suez Canal, putting Israel’s international trade as well as global trade at risk.

That’s after Danish shipping giant Maersk and German shipping company Hapag-Lloyd, announced similar decisions on Friday, as a ballistic missile fired by Houthi militants slammed into a cargo ship that day in the Red Sea, near the strategic Bab el-Mandeb Strait.

Instead, container ships bound for Israel from the Far East will now need to take a 40 percent longer route around Africa and the Cape of Good Hope, increasing the shipping time of goods by two to four weeks and raising the costs per ship by up to $1 million.

The Bahaman-flagged ‘Galaxy Leader’ ship purportedly hijacked by the Yemen-based Houthis on November 19, 2023. (William J Leach Jr/VesselFinder used in accordance with clause 27a of the copyright law)

The additional costs will make goods more expensive for importers and trickle down to higher costs for consumers. That is as ships sailing for Israel since the war erupted already have higher freight costs, as they need to pay an additional war risk premium levied by marine insurers.

For Israel, this is a major concern, as air freight is not an option, since 99% of goods are imported by the sea and trade with Asia has soared.

“The center of gravity in the economy is very clearly moving to the countries of the Far East, and accordingly, Israel’s trade with those countries has also been increasing and accounts for 25% of Israeli exports and imports,” said Prof. Shaul Chorev,  a retired Israeli Navy rear admiral and head of the Research Center for Maritime Policy and Strategy at the University of Haifa. “Because of the attacks, there is almost no activity at the Israeli Red Sea port of Eilat although most of the containers are headed to Israel’s main ports in Ashdod and Haifa.”

In October, Israeli imports of goods, excluding diamonds, totaled NIS 17.5 billion. About 49% of the imports were from European countries and 25% were from Asian countries,, according to data by the Central Bureau of Statistics. Imports from the Far East, mainly China, include machinery for infrastructure and construction projects, consumer products and merchandise ordered from Chinese websites, including Ali Express, as well as electronic products and in recent years Chinese-made vehicles.

“About 30% of Israeli imports come through the Red Sea on container vessels that are booked two to three months in advance for consumer or other products, meaning that if the voyage will now be extended, products with a shelf life of two to three months will not be worthwhile importing from the Far East,” said Yoni Essakov, who sits on the executive committee of the Israeli Chamber of Shipping. “Importers will need to increase stock due to the uncertainty and pay much more and others will lose out on their markets as time to market is not competitive.”

Prof. Shaul Chorev, head of the Research Center for Maritime Policy and Strategy at the University of Haifa. (Yarden Zahav/Courtesy)

Going forward, and with the security threat increasing, Chorev believes that shipping companies may decide to either stop coming to Israel altogether or go to other hubs or ports close to Israel, in Cyprus or Greece, to discharge and the freights bound for Israel will then need to be picked up by smaller vessels to get to the final destination.

The Hong Kong-based Orient Overseas Container Line (OOCL) announced on Saturday that it “will stop cargo acceptance to and from Israel with immediate effect until further notice,” due to operational issues.

“What if more shipping companies decide to bypass the Israeli market for now or insurance companies won’t insure ships going through the Red Sea — this is dramatic for the Israeli economy,” said Essakov, who is also managing director of Israeli cargo shipping company Coral Maritime Services Ltd.

The economic fallout from the escalating Houthi attacks in the Red Sea is not just an Israeli problem. The Red Sea links Europe and Asia and is connected to the Mediterranean Sea through the Suez Canal and hence any disruptions will also be affecting European trade and is poised to interrupt the global oil supply. Currently 12% of global trade passes through the Red Sea, according to the International Chamber of Shipping.

Essakov and Chorev called on the Israeli government address the pressing situation together with the international community as part of a multinational taskforce with the US and European allies with the aim of protecting ships.

Calling the recent Houthi attacks a “flagrant breach of international law,” the International Chamber of Shipping on Friday called on “states with influence in the region [to] work to stop the actions of the Houthis in attacking seafarers and merchant ships, and de-escalate what is now an extremely serious threat to international trade.”

Yoni Essakov, managing director of Israeli cargo shipping company Coral Maritime Services Ltd. and director at the Israeli Chamber of Shipping. (Courtesy)

Beyond global trade, the decision to bypass the Suez Canal will also affect other countries in the region, and in particular hit Egypt’s struggling economy hard as the canal’s fees amount to $12 billion a year in revenue, according to Dr. Ronni Shaked from the Truman Institute at the Hebrew University of Jerusalem.

“It is a big economic problem, which requires the formation of an international coalition to protect the vital trade route and safeguard the international principle of freedom of navigation,” said Shaked.

The United States, which has been reluctant to hit back militarily, is reportedly weighing options to strike back at Yemen’s Houthis. US National Security Adviser Jake Sullivan traveled to Abu Dhabi on Friday for a meeting with his Emirati counterpart Tahnoun bin Zayed, about the ongoing war in Gaza and the pair also touched on “countering threats from the Houthis to freedom of navigation in the Red Sea.”

AP contributed to this report.

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