The Global Economic Consequences of the Attacks on Red Sea Shipping Lanes


Maritime shipping, the backbone of international commerce, is under stress resulting from several crises in different chokepoints across the globe. Chief among them is instability caused by the Houthi attacks on ships in the Gulf of Aden and the Red Sea, an obligatory route for vessels transiting the Suez Canal. The attacks—which involve advanced equipment such as drones and missiles largely made possible by Iran’s backing—have provoked a response from the U.S. and UK militaries, raising fears of the conflict metastasizing. Access to one of global shipping’s most critical arteries now seems more perilous, inviting questions on the viability of maritime trade in the region. The CSIS Scholl Chair in International Business and Middle East programs break down the geopolitical underpinnings of the ongoing attacks as well as the eventuality of a protracted conflict and analyze their meaning for global trade.

Q1: Why are the Houthis attacking commercial shipping lanes in the Red Sea?

A1: The Houthis portray their attacks on ships in the Red Sea as an act of solidarity with Palestinians. They hope that the costs of the trade disruptions will encourage Western governments to pressure Israel into accepting a ceasefire in Gaza. But they are also seizing the opportunity to bolster their popularity in Yemen. After a decade of conflict, Yemenis are experiencing profound economic and humanitarian crises, and the Houthis are struggling to provide basic services. These attacks shift the attention away from domestic challenges and allow the Houthis to depict themselves as being on the frontlines of a regional war against Israel and the United States, in defense of the Palestinian cause. Finally, the Houthis lack legitimacy on the global stage; the Yemen-based group is trying to attract international attention and demonstrate that larger actors cannot simply ignore them.

Q2: How are shipping companies responding?

A2: The significantly heightened risk of attack has caused shipping companies to reconsider transiting the Suez Canal via the Red Sea. Between December 15 and 19, 13 shipping operators announced suspensions of their trips to and from Israel or their voyages transiting the Red Sea

Cargo insurance plays an outsized role in the decision to risk transiting the Red Sea. Analysts tracking cargo insurance have seen a sharp increase in insurance rates for Red Sea and Bab al-Mandab voyages. These rates, which—according to Ali Ahmadi, an executive fellow at the Geneva Centre for Security Policy—are typically 0.6 percent of the value of the cargo on a ship, are now up to 2 percent. An additional war risk premium is also added by cargo insurers, further increasing the price of taking the Suez Canal route. Container vessels—and, to a lesser extent, car carriers—have been rerouted with the most frequency. Container vessels are a subset of all cargo ships that carry goods in shipping containers. These ships often hold higher value—and therefore incur higher insurance costs—than bulk carriers or hydrocarbon tankers.

Maersk, one of the world’s leading shipping companies, is one of many firms that have chosen to indefinitely suspend their Red Sea routes. On December 14, 2023, Maersk reported that a near-miss incident involving their vessel, Maersk Gibraltar, had caused them to temporarily pause all passages through the Bab-al Mandab Strait. Five days later, they instructed their ships to reroute around the Cape of Good Hope. When Operation Prosperity Guardian (OPG) was launched, Maersk chose to continue journeys through the Red Sea and toward the Suez Canal. However, OPG failed to deter a December 30 attack on another Maersk vessel, the Maersk Hangzhou. Since then, Maersk has again diverted all Suez-bound ships around the Cape of Good Hope until further notice.

For Europe-Asia voyages, a diversion to the Cape of Good Hope increases shipping time by 30 to 50 percent. Not only does this have immediate economic impacts, but it creates medium-term logistics issues for individual shipping firms. Maersk is beginning to release preemptive ship diversions that stretch several months into the future. In one example, the Maersk Moscow 409E—which is scheduled to sail from the Netherlands to Malaysia starting March 12—has already received a diversion order to the Cape of Good Hope. The new expected date of arrival in Indonesia is April 8, 2024, which is nearly 17 days longer than usual.

The Red Sea crisis has not halted trade through the Red Sea region entirely. Presumably, ships with low cargo value, and a higher tolerance for risk, have deemed the trip worth making. Live data from MarineTraffic continues to show a sizeable—though much less than normal— amount of cargo vessels and tankers sailing through the Bab al-Mandab Strait into the Red Sea and through the Suez Canal.

Q3: What are the macroeconomic consequences of the conflict?

A3: The Red Sea crisis is directly responsible for cargo shipping delays and price increases in the short term. While the attacks on vessels are tied to the ever-changing conflict in the Middle East—and therefore difficult to predict in the medium to long term—delays and cost increases are highly likely to continue into the following months as shipping firms begin to plan for a protracted conflict.

According to International Monetary Fund data as of January 22, 2024, the seven-day rolling average of Bab al-Mandab passages has dropped to 46 percent compared to the same period last year. Suez Canal passages are at 63 percent compared to the previous year, while Cape of Good Hope passages are up 70 percent. The increase in ship diversions increases fuel and labor costs while decreasing the average amount of cargo traffic reaching its destination.

Egypt’s Suez Canal revenues have taken a hit due to ship diversions. As of January 12, 2024, revenues are down 40 percent in comparison to 2023 levels. Worse yet for the Egyptian economy, canal fees are paid in foreign currency, which the government has struggled to obtain due to rapidly growing inflation.

Diversions and subsequent price increases affect different shipping industries in different ways. Bulk carriers, which carry less valuable cargo (often raw materials), are not impacted in the same way as cargo ships, which tend to transport more valuable goods. The Baltic Dry Index, which tracks the cost of transporting various raw materials provides insight into the macroeconomic impact of shipping delays. While the index spiked to above $3,000 in early to mid-December, the cost of shipping has dropped to $1,503 as of January 22, which is an approximately normal level.

On the other hand, cargo shipping, which transports more value than bulk carriers (thus, is more likely to avoid the Red Sea) has had a sustained price increase. Drewry’s World Container Index—which tracks the average price of transporting a 40-foot (ft) container on a cargo ship— jumped from $1,521/40 ft on December 14, 2023, to $3,777/40 ft as of January 18, 2024. Routes from Asia to Europe, which normally transit the Red Sea, have seen the steepest increase in price. Drewry shows that the average Shanghai to Genoa shipment is above $6,000/40 ft. However, knock-on effects can be seen in unaffected routes. Shanghai to Los Angeles cargo rates jumped from $1,985/40 ft to $3,860/40 ft between December 14, 2023, and January 18, 2024.

While these numbers suggest immediate increases in prices, other economic elements will factor into the cost of shipping in the long run. According to the Financial Times, carrier companies have ramped up their purchasing of vessels. Between 2022 and 2025, the global capacity of container shipping is expected to increase by around 25 percent, helping to control prices.

Q4: How are geopolitics shaping the fate of the Red Sea Crisis?

A4: The Red Sea Crisis is tied to the fate of the conflict in the Middle East. Though it is not clear that the Houthis are striking cargo ships in pure solidarity with the Palestinian cause, the ongoing humanitarian crisis in Gaza gives the Houthis international political cover to continue attacks. Key regional actors, such as Saudi Arabia and Egypt, have limited options to engage as they do not want to be seen as taking Israel’s side.

Governments around the world are continuing to engage in diplomatic and strategic calculations that serve their shipping interests. India—which has come out as firmly pro-Israel—relies on the Suez Canal for its exports to the Mediterranean and is significantly exposed to the Red Sea Crisis. The Indian Ministry of Commerce and Industry stated that about 80 percent of all goods exports to Europe are sea-based voyages through the Red Sea region. Exports to the European Union make up 15 percent of all Indian goods exports. The Indian government has reportedly held diplomatic talks with Iran and is taking further measures to protect its exporters from Houthi attacks.

Similarly, China, which relies on shipping for 95 percent of its exports, has a strong economic interest in securing Red Sea shipping lanes. Beijing, however, is in a difficult diplomatic position. Chinese diplomats have expressed apprehension at the U.S.-led military actions, preferring to distance itself from kinetic intervention. China may well have calculated that their ships in the Red Sea will not be targeted by Houthi attacks in the same way that pro-Israel Western vessels have been. Some Chinese ships in the Red Sea, according to reporting from Bloomberg, have been using signals to advertise the nationality—and their absence of economic links to Israel.

Regardless of diplomatic engagement, attacks on ships will likely persist in the immediate term. The Houthis are gaining popularity in Yemen and have little interest in halting the attacks while the conflict in Gaza continues. And the attacks may continue even after Israel ends the war. The Houthis relish the prospect of engaging in direct hostilities with the United States, as it bolsters their legitimacy, and they do not consider it to represent an existential threat to their rule.


While higher-value shipping is most impacted with diversions to the Cape of Good Hope caused by skyrocketing insurance rates, lower-value shipping—bulk carriers—are still transiting the Red Sea. Shipping prices have thus experienced sustained increases for the diverted high-value cargo, whereas they have essentially returned to normal for bulk carriers. The attacks themselves are unlikely to be resolved soon. Aside from the Israel-Hamas conflict, which is unlikely to subside soon, the Houthis’ realization that their attacks attract international attention and distract the Yemeni population from the group’s inability to provide basic services is reinforcing their current course of action.

Thibault Denamiel is an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Matthew Schleich is an intern with the Scholl Chair in International Business at CSIS. William Reinsch holds the Scholl Chair in International Business at CSIS. Will Todman is deputy director and a senior fellow with the Middle East Program at CSIS.

Matthew Schleich

Matthew Schleich

Temporary Research Assistant, Scholl Chair in International Business
Will Todman
Deputy Director and Senior Fellow, Middle East Program