Photo: Rokas Tenys | Dreamstime.com
This is getting very messy indeed – a drone of some sort yesterday hit an LNG tanker in the Egyptian port of Damietta, at the northern mouth of the Suez Canal, potentially dragging the wider Middle East into the conflict surrounding Iran.
Let’s try to unpick this a little.
The US and Iran continue to trade air strikes across the Gulf, establishing Hormuz as the epicentre of a war zone; the US and Saudi Arabia launched attacks on Iranian proxies in Iraq; the Saudis are blockading Yemeni ports and launching air strikes on Houthi-controlled airports; in return, the Houthis are attacking Saudi tankers, thus putting the Red Sea on the verge of becoming another war zone.
These are connected events and theatres, but also disconnected; they are correlated, but not entirely causal – a détente between the US and Iran would not necessarily lead to a cessation of hostilities in the Red Sea, and vice versa.
While the Houthis are clearly affiliated with Iran, they do not take orders from Tehran, evidenced by the fact that it has taken them this long to become involved in the conflict and that the catalyst was the Saudi attacks on Sanaa Airport, rather than the US and Israeli air strikes on Iran.
Yemeni exporter Hashim Al-Omeisy, told this year’s TPM in Long Beach the day after the first US and Israeli attacks were launched, how the Houthi and Iranian paths had diverged over the past few years – it is well worth a quick read. But one key fact quickly become apparent since the group began attacking merchant shipping in the Red Sea in late 2023: controlling the Bab Al Mandad strait is a great money-earner.
“Their tax on the Red Sea was to get legitimacy, but it was also for economic leverage, because a lot of shipping companies have been paying levies to be allowed passage – so they’ve been making a lot of money from them,” he said.
Events in Hormuz over the past four months have amplified that message, and the prospect the Houthis would return to this strategy felt like an unlocked door simply waiting to be pushed open.
“Unspecified regional sources told 路透社 yesterday that the Houthis may start to impose fees on international commercial vessels transiting the Red Sea and Bab al Mandeb Strait,” the Institute for the Study of War (ISW) writes 今天。.
“An Arab state official claimed the Houthis discussed prospects of establishing a regulatory authority to charge fees for vessels transiting the Bab al Mandeb, similar to Iran’s Persian Gulf Strait Authority,” it says, adding that China appears to have already voted with its feet, so to speak.
“Unspecified sources told 路透社 the People’s Republic of China has held direct negotiations with the Houthis to secure safe and toll-free passage for PRC vessels navigating the southern Red Sea”. However, it adds: “It is unclear whether the Houthis intend to establish a fee system in order to achieve other potential strategic objectives, such as securing codified permanent control over the Bab al Mandeb.”
For the main tranche of commercial shipping companies that operate according to international law, and are thus subject to sanctions regimes, it is not so simple as both the Houthis and the Iranian regime are sanctioned entities, and paying either Hormuz or Red Sea transit fees would be illegal.
For container carriers and their customers, there is some solace in that the peak shipping season has begun to wane and that there is already a long-standing Plan B (Cape of Good Hope), in conjunction with just-about-enough capacity that container supply chains should remain intact for the remainder of the year.
The broader picture is deeply troubling: shipper hopes of a full-scale Red Sea reopening are in abeyance, freight costs will remain elevated and subject to sudden spikes, and the longer-term economic impact is getting grimmer by the day.