By Pishtaz | 2024-02-23

The Iran-backed Houthis' attacks on Red Sea commercial shipping have slowed trade and imperiled the global economy, international development agencies, commercial shipping companies and governments warn.

Speaking at the World Governments Summit in Dubai on February 12, World Bank President Ajay Banga listed the challenges in the Red Sea among the top challenges to the global economic outlook.

Other key challenges include Russia's war on Ukraine and ongoing conflicts in the Middle East.

When "you add these variables to what is already turning out to be probably the lowest growth of the last 35, 40 years...that's something we've got to keep a close eye on," Banga said.

Speaking at the same event, International Monetary Fund (IMF) managing director Kristalina Georgieva warned of these increasing conflicts and "a risk of spillover in the Suez Canal".

Suez Canal revenue drops

Revenues from the Suez Canal have "decreased by 40 to 50%" so far this year because of the Houthis' attacks on shipping, Egyptian President Abdel Fattah al-Sisi said February 19.

The Suez Canal "used to bring Egypt nearly $10 billion per year," al-Sisi said during a conference with oil companies, noting that Egypt must continue to pay companies and partners.

In late January, the United Nations Conference on Trade and Development (UNCTAD) warned that the volume of commercial traffic passing through the Suez Canal had fallen by 42% in the previous two months, AFP reported.

The number of weekly container ship transits through the Suez fell by 67% year-on-year, it said. Meanwhile, tanker traffic dropped 18%, the transit of bulk cargo ships carrying grain and coal was down 6% and gas transport was at a standstill.

The Suez Canal raised around $8.6 billion for Egypt in the 2022-23 fiscal year, a vital source of foreign currency, alongside tourism and remittances, in a country where importers and money changers struggle to source dollars.

Maersk's profit sinks

Shipping giant Maersk on February 8 reported a massive drop in net profit in 2023 and warned of "uncertainty" in 2024 due to the Houthis' Red Sea attacks.

The group lowered its 2024 forecast for its core profit -- earnings before interest, tax, depreciation and amortization -- to a range of between $1 billion and $6 billion.

"High uncertainty remains around the duration and degree of the Red Sea disruption with the duration from one quarter to full year reflected in the guidance range," Maersk said.

Maersk and other shipping companies have redirected ships away from the Red Sea, making them take the longer and costlier route around the tip of Africa.

QatarEnergy, which is one of the world's largest exporters of liquefied natural gas (LNG), is among the companies that have chosen to divert their vessels away from the Red Sea.

Sailing from Qatar to Europe via Africa's Cape of Good Hope could add around nine days to the 18-day voyage, AFP reported.

This will add cost, time and "constraint on actual deliveries," Qatari Energy Minister Saad al-Kaabi said at a February 19 groundbreaking ceremony at the Ras Laffan petrochemical complex.

It may not be felt in the short term, he said, "but if it's long term, then it will actually hamper movement... if you take a full year, the net volume that actually is transferred," he added.

"Whether you talk about LNG, crude, LPG [liquefied petroleum gas] condensate, it's exactly the same thing for all these products," al-Kaabi said.

Additional time, costs

The International Maritime Organization (IMO) is working "tirelessly" to solve the Red Sea crisis, which is severely disrupting the global transport of goods, IMO head Arsenio Dominguez told AFP.

The IMO's objective is to "provide practical and operational measures so that ships can continue to operate," he said.

Sending ships around the south of Africa "is not the ideal solution," Dominguez said, as it increases the cost of transport, and ultimately the price of the cargo.

"We now have more than 60% of the annual tonnage that normally goes through the Suez Canal now going around southern Africa," he explained.

Insurance also has gone up, and increased fuel use is creating additional costs. There is also a human impact, with crew having to spend extra days at sea, Dominguez said.