Crisis in the Red Sea: Impact on global trade and economic realignment

Report by Wissam Nasrallah, English adaptation by Yasmine Jaroudi

Amid the challenges posed by the Red Sea trade crisis, the situation is garnering media coverage and international concern relative to that witnessed during the Gaza war.

 

This is not without reason, considering that 12% of global maritime trade passes through the Bab el Mandeb Strait, connecting the Indian Ocean to the Mediterranean through the Red Sea and the Suez Canal.

The Bab el Mandeb Strait crisis has political repercussions, but its economic consequences are prompting nations worldwide to reassess priorities and evaluate their alliance objectives.

China, a key player in the escalating tensions with the United States and a significant target of Houthi attacks alongside Israel has requested assistance from its ally Iran, a supporter of the Houthis, to halt these attacks on ships in the Red Sea.

According to Reuters, China is concerned that any damage to its interests will affect its relationship with Tehran.

The impact of Houthi attacks is affecting Chinese exports to Europe, valued at 626 billion euros in 2022, with exports now suffering due to the targeting of shipping, as stated by Statista.

The decline in maritime trade in the Bab el Mandeb Strait is also reflected in the Suez Canal, where, according to the German site DW, the canal contributed $9.4 billion to Egypt in transit fees for the fiscal year from June 2022 to June 2023. This figure is expected to decrease by 40%, dropping to $5.6 billion.

The targeting of the Red Sea is not limited to Asian and regional countries; European ships are also in jeopardy.

Recently, the Danish shipping group Maersk, one of Europe's largest shipping companies, announced its decision to sail around the Cape of Good Hope for its shipping line connecting India and the East American Coast.

According to The Telegraph, circumventing South Africa adds 10 to 14 days to the delivery time of goods, resulting in a 170% increase in shipping costs between Europe and Asia.

These developments have led several European countries to reconsider their reliance on Chinese exports and consider establishing European factories to meet their needs, as reported by various Western media outlets, including Deutsche Welle (DW).

With Europe facing economic challenges and the cost of shipping goods from China becoming more expensive, Egypt is losing billions of dollars.  

On the other hand, Israel is attempting to compensate for the ensuing damage to its imports through a land route to transport goods from the Arabian Sea to the Israeli interior, according to Foreign Policy.

As a result, the United States appears to be the least affected by the events in the Red Sea, and its exports to Europe through the Atlantic Ocean remain unaffected.

In 2022, US trade in goods and services with the European Union was estimated at around $1.3 trillion, according to the US Trade Representative's office.