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Red Sea Crisis: A Shock to The Global Economy

The crisis in the Middle East is intensifying day by day. On October 7, Hamas attacked Israel. In response, Israel's attack on Gaza began a few hours later. Meanwhile, the Red Sea crisis began. This crisis has a link to the Israel-Gaza war. Because Yemen's Houthi rebels supporting Hamas started attacking Israel linked ships in the Red Sea. After that, the Western world including the United States took steps to keep the transportation of goods in the Red Sea normal. However, the crisis has become more complicated day by day.

 

Soon after the October 7 incident, Houthi leader Abdulmalik al-Houthi expressed his and his forces' support for Hamas. He said thousands of members of his forces are ready to join the Palestinian people and confront the enemy.

 

The beginning of the crisis in the Red Sea after the Houthi leader's announcement. The Houthis have carried out several rounds of missile and drone attacks in this sea. Most of those attacks, however, have been repelled by the United States and Israel. However, on November 19, Houthis took a helicopter and hijacked a ship. The vessel is operated from Japan but is owned by a businessman in Israel.

 

The Houthis have since attacked at least 17 ships in the Red Sea. All of these were linked to Israel or its allies. In this situation, on the last day of 2023, US Navy helicopters fired at several small boats in the Red Sea. It was reported from the container that the vessels were trying to seize a large container. The ship was named Maersk Hangzhou. 10 Houthis aboard the small boats were killed by US Navy helicopter gunfire. Then the situation became more complicated.

 

Why is the Red Sea so important?

 

The Red Sea is very important to the global economy. Because goods are transported from Asia to Europe and the United States through this sea. 30 percent of global container ships pass through the Red Sea. So if the transportation of goods in this sea is disrupted, it will have a negative impact on the economy.

 

In the meantime, efforts have been made to avoid the region of the Red Sea to transport goods to avoid Houthi attacks. But as the distance has increased a lot, the cost of transportation has also increased a lot. Experts say that if the cost of transportation increases, it will have a direct impact on the market. Oil markets in particular can become volatile. Besides, the supply of products produced in Asia may be short in western countries. Israel is also heavily dependent on Red Sea shipping.

 

Who are the Houthi rebels?

 

The Houthis are essentially a rebel group. They follow Zaydism, a branch of Shia Islam. Zayd Ibn Ali rebelled against the Umayyad Caliphate in the eighth century. But he could not succeed. Although Zayd Ibn Ali did not succeed, his followers became a branch of Shia Islam. That is Zaidism. Followers of this ideology once ruled Yemen. However, after the civil war that lasted from 1962 to 1970, the followers of Zaydism fell into disrepair. Sana'a, the capital of Yemen, fell completely under the control of the Sunni ruling group.

 

However, in 2014, the Houthis staged a coup and overthrew the Sunni government. Due to this, the operation of the military coalition led by Saudi Arabia began there. According to the United Nations, more than 377,000 people have been killed in this conflict since 2014 to 2021. More than 4 million people have been displaced.

 

However, the Houthis have won the war despite paying a heavy price. Violence has largely subsided in Yemen thanks to a cease-fire that began in April 2022. The ceasefire expired in October of that year, but violence did not escalate. Most Yemenis now live in rebel-held areas. The Houthis control northern Yemen as well as the Red Sea coast. There are allegations that Iran is directly supporting the Houthis.

 

Meanwhile, the Yemenis have strong support for the Houthi attack in the Red Sea. They think this is an effective way to put pressure on Israel to protect the Palestinian people. Experts say the Houthis are growing in popularity in Yemen due to attacks on Israeli and allied ships in the Red Sea. Disruption to the movement of goods in this sea would have global implications. With Israel being disciplined, the whole of Yemen could come under the control of the Houthis. Although the government in control of the southern part of the country is the internationally recognized government.

 

Meanwhile, Saudi Arabia is trying to fix relations with Iran. The draft of the Houthi peace agreement is also quite ready. As a condition of the deal, Saudi Arabia may recognize the Houthi government in northern Yemen. In this situation, Riyadh fears that any reaction of the United States in the Red Sea may complicate the process of withdrawal of Saudi troops from Yemen.

 

Response of shipping companies

 

Seven of the world's 10 largest shipping companies have stopped using the Suez Canal and the Red Sea because of the crisis. One of these companies is BP and the German company Hapag-Lloyd. Maersk also stopped using the Red Sea after the Maersk Hangzhou attack.

 

Some companies have resumed using the route after a US-led naval coalition was formed to secure cargo in the Red Sea. But many are still using alternative routes. Many ships go from Asia to Europe via southern Africa. This increases the time of transportation of goods up to two weeks.

 

According to data released by global logistics company Flexport in the last week of 2023, half of the daily container ships that used to travel through the Red Sea are now avoiding this route. That means 18 percent of global container ships are using alternative routes. This increases the cost of transportation, adding a surcharge of US$ 5,000 for every 40 feet container.

 

Global action to tackle the crisis

 

The US has formed a naval task force to stop the rise of the Houthis in the Red Sea. The name of this task force is Operation Prosperity Guardian. Most of the countries participating in this task force have provided sailors. However, the United States and the United Kingdom sent ships. Bahrain is the only Arab country to join the alliance.

 

In this case, the United States has to do a lot of calculations. Saudi Arabia, the ally of the United States, has started the process of making a peace agreement with the Houthis in Yemen and withdrawing its troops. Any US response in the Red Sea could derail this effort. In that case, Iran's influence in Yemen may increase. Meanwhile, allowing the Houthis to attack freely in the Red Sea will definitely have a major negative impact on the world economy. As a result, Washington is in a kind of crisis.

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