Global trade is suffering a major setback from missile attacks in the Red Sea, where 10% of the world’s seaborne trade passes through.
Oil giant British Petrol (BP) announced on Monday that it had temporarily halted all transits via the Red Sea after recent attacks carried out by the Yemeni Houthi rebel movement, an ally of Iran.
“Given the deterioration of security conditions for navigation in the Red Sea, BP has decided to temporarily halt all transits in the Red Sea,” the company said, according to Reuters.
“The safety of our staff and those who work on our behalf is BP’s priority.”
A British maritime authority on Monday reported a possible explosion near a ship near the Bab al-Mandab Strait as well as two other incidents in the area, located at the southern end of the Red Sea.
Houthi attacks on ships derail global trade
Many of the the world’s major shipping companies have decided to abandon Red Sea routes in recent days, after escalated attacks on ships in the area.
After several attacks or near-misses by Iranian-backed rebels Yemen’s Houthis, the world’s biggest shipping company Maersk and German-based shipper Hapag-Lloyd both paused all their container ship traffic in the region temporarily.
The Houthis have sporadically targeted ships in the region, but the attacks have increased since the start of the Israel-Hamas war.
They have used drones and anti-ship missiles to attack vessels and in one case used a helicopter to seize an Israeli-owned ship and its crew, reported AP.
The Houthis are reportedly targeting Israeli-linked vessels, but container ships and oil tankers flagged to countries like Norway and Liberia have been attacked or drawn missile fire while traversing the waterway between Africa and the Arabian Peninsula.
“The numerous attacks originating from Houthi-controlled territories in Yemen threaten international navigation and maritime security, in grave contravention of international law,” the European Union foreign policy office said.
About 10% of the world’s seaborne trade passes through the Red Sea, therefore concerns are high about the impact of the situation on the flow of oil, grain, and consumer goods.
Ships, trying to find alternative routes to the Red Sea, will have to choose a longer way, increasing the cost of transport, and causing delays in cargo deliveries.
Insurance costs are skyrocketing
The biggest immediate impact of the Houthi escalation has been increased insurance costs.
There is “a further degree of instability facing commercial operators within the Red Sea which is likely to continue to see heightened rates across the short to medium term,” said Munro Anderson, head of operations for Vessel Protect, which assesses war risks at sea and provides insurance with backing from Lloyd’s.
Insurance costs have doubled for shippers moving through the Red Sea, which can add hundreds of thousands of dollars to a journey for the most expensive ships, said David Osler, insurance editor for Lloyd’s List Intelligence, which provides analysis for the global maritime industry.
For Israeli ship owners, they have gone up even more — by 250% — and some insurers won’t cover them at all, he said.