How Attacks on the Red Sea Affect Global Trade and Endanger Asian Exports

The Red Sea has become a hotspot of maritime violence in recent months, as several attacks on commercial vessels have disrupted the global trade and threatened the security of the region.

Key Takeaways

• The Red Sea is a strategic waterway that connects Asia and Europe, carrying about 12% of global shipping.
• Trade volume through the Suez Canal dropped by 50% while transiting around the Cape of Good Hope surged by 74% compared to the previous year, indicating significant shifts in shipping routes.
• Port calls to 70 ports in sub-Saharan Africa declined by 6.7% in the first two months of 2024, suggesting potential disruptions to supply chains and upward pressure on inflation due to longer shipping times.
• Shipping disruptions may impact official statistics on recorded imports and exports, making it challenging to gauge the underlying momentum of global trade and economic activity in the coming months, potentially leading to lower fiscal revenues for some low-income countries.

The attacks, which have been blamed on Iran-backed militias, have targeted ships carrying oil, gas, and other goods from Asia to Europe and vice versa. The attacks have caused delays, damages, and increased insurance costs for the shippers, as well as raised tensions among the countries bordering the Red Sea. The trade route has been severely disrupted by the attacks of Houthi rebels, who are opposed to Israel’s war on Hamas in Gaza.

The situation poses a serious threat to the supply of several key exports from Asia to Europe, such as electronics, textiles and oil.

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The attacks on ships in the Red Sea region have significantly disrupted traffic through the Suez Canal, which is the shortest maritime route between Asia and Europe. Approximately 15% of the world’s maritime trade volume normally passes through this route. As a result, several shipping companies have diverted their vessels around the Cape of Good Hope. This has led to an average increase of 10 days or more in delivery times, causing detrimental effects on businesses with limited stock.

The attacks have also affected the export of Asian products to Africa and the Middle East, which rely on the Red Sea route for their trade. The Red Sea is one of the most important waterways in the world, connecting the Indian Ocean and the Mediterranean Sea through the Suez Canal.