The current instability in the Middle East may soon become completely out of control, UN Secretary-General Antonio Guterres warned at a press conference in New York on January 15. 

“Tensions are also sky-high in the Red Sea and beyond – and may soon be impossible to contain,” Guterres said, adding that he was worried that “daily exchanges of fire” risk “triggering a broader escalation between Israel and Lebanon and profoundly affecting regional stability.”

The Houthis, an Iran-backed rebel group based in Yemen, which considers Israel an enemy, began attacking merchant vessels in November 2023, saying they were responding to Israel’s military operation in Gaza. Since then, the group has launched dozens of attacks on commercial tankers passing through the Red Sea, one of the world’s busiest shipping lanes.

As of January 19, the U.S. carried out a fifth round of strikes in Yemen, after Houthi forces ignored an ultimatum to cease attacks in the region.

U.S. president Joe Biden justified the operation, stating that it was in response to “unprecedented attacks by the Houthis on international maritime vessels in the Red Sea,” which included anti-ship ballistic missile strikes. He maintained that the strikes were defensive in nature.

On January 18, Biden acknowledged that the strikes had not halted attacks by the Houthis but said U.S. military response would continue.

Houthi attacks in the region since November last year have disrupted global trade and major powers feared that the Israel-Hamas conflict will spread to the wider region. These attacks severely disrupted maritime trade as freight companies diverted their vessels around the Cape of Good Hope to avoid using the Suez canal.

The Houthis claimed they are targeting Israel-bound vessels passing through the Red Sea in solidarity with the Palestinians. 

“We’re not looking to expand this. The Houthis have a choice to make and they still have time to make the right choice, which is to stop these reckless attacks,” said White House spokesman John Kirby. 

Electric car maker Tesla said on January 12 that it had to shut down its Gigafactory plant in Grünheide outside Berlin from January 29 to February 11 owing to disruptions in its supply chains, amid U.S.-led airstrikes on Houthi missile and drone launch sites in Yemen. 

The Tesla factory closure signified what could be called the first major economic ramifications of these Red Sea attacks felt in Europe. A Tesla representative said the company was facing delays due to the forced redirection of container vessels around the Cape of Good Hope. 

The Grünheide factory is Europe’s only Tesla hub specializing in the making of electric batteries and Model Y cars. The production stoppage came in wake of grave challenges to the German electric vehicle sector as a result of rising energy costs, existing supply chain constraints and competition from America and China.

As a consequence of Houthi attacks in the Red Sea, Swedish-based auto-maker Volvo halted production in its Belgian facilities for three days, in response to the flow of trade through the Red Sea slowing down by 60 percent in December alone.

The Red Sea crisis leaves Europe vulnerable, especially Germany, with recent economic indicators depicting a 1.9 percent drop in European exports primarily owing to the chaos in the Middle East region. Observers have warned that attacks could have severe consequences for Asia-Pacific imports too.

In a move that would prolong freight durations, various major freight companies – including MSC – have begun to sail around Africa instead, adding costs and delays which are expected to increase over the coming weeks, according to industry analysts. About 15 percent of the world’s shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia.

The war between Israel and Hamas, which began on October 7, 2023 when Hamas militants invaded Israel, killed 1,200 people and kidnapped 240 hostages, has rattled the Middle East region and undermined regional stability.

Furthermore, the Houthis’ Red Sea attacks have displayed the capability of Middle Eastern paramilitary forces aligned with Iran to jeopardize global trade at a time when Tehran and its proxies are pitching themselves against the U.S. and Israel.

Combined, the companies that have rerouted vessels “control around half of the global container shipping market,” ABN Amro analyst Albert Jan Swart told Reuters. “Avoiding the Red Sea will lead to higher costs due to longer travel time,” Swart said.

Oil major BP temporarily halted all transits through the Red Sea and oil tanker group Frontline said on December 18 its vessels will avoid passages through the waterway, signs the crisis was broadening to include energy shipments. Crude oil prices rose on those concerns on the same day.

“War risk insurance premiums are on the rise naturally, but as vessels get rerouted around Africa shipping supply will be tighter as cargoes travel longer,” Frontline CEO Lars Barstad told Reuters. “That would put rates under a strong upwards pressure.”

On December 18, 2023, Norwegian energy group Equinor also said it had rerouted “a few ships” carrying crude oil and liquefied petroleum gas (LPG) away from the Red Sea. The company declined to say how many vessels were affected.

Tanker firm Euronav said in December 2023 that it planned to avoid the Red Sea until further notice.

The Houthi attacks were also forcing companies to rethink their connections with Israel, with Taiwan’s Evergreen Marine saying last year it had decided to temporarily stop accepting Israeli cargo.

In turn, the Houthis denounced the U.S.-led attacks, pledging to retaliate. Spokesman Mohammed Abdulsalam said the strikes were “blatant aggression” and would “not go unanswered”, sparking concerns about the potential for a wider regional conflict. 

“The United States is on the verge of losing its maritime security,” Houthi spokesman Nasruldeen Amer told Al Jazeera on January 15.  Although the Houthis previously claimed that the group would only target Israeli ships and vessels bound for Israel, the spokesman said that in light of the U.S. strikes, “it is enough for it to be American.”

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