Prolonged trade disruption in Red Sea could affect Mena economies

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Prolonged disruption to shipping in the Red Sea could significantly affect several Middle East economies and global trade as Yemen’s Houthi rebels continue to carry out attacks on vessels passing through the crucial waterway, a senior International Monetary Fund executive has said.

Freight container prices surged and Suez Canal trade volumes plunged after the first attack on ships by the Houthis last month, Jihad Azour, the fund’s director for the Mena region, told the Arab Strategy Forum in Dubai on Wednesday.

“The cost of exports increased, especially in trade between Asia and Europe, knowing that a huge part of oil imports was through the Suez Canal,” Mr Azour said.

The security situation in the Red Sea poses risks to global supply chains and commodity trade as the Indian Ocean waterway serves as a vital route for international trade and shipments of oil and gas, he added.

The Iran-backed Houthis have been launching rockets at cargo ships in the Red Sea since November, actions they claim are in response to Israel’s bombardment of Gaza.

Bab Al Mandeb, a strait at the southern edge of the Red Sea, is a route for oil tankers and vessels travelling between the Arabian Gulf and Asia, as well ships headed to Europe by way of the Suez Canal.

About 12 per cent of seaborne oil trade and 8 per cent of the world’s liquefied natural gas passes through the strait.

Several shipping companies including Hapag Lloyd, the Mediterranean Shipping Company and Maersk have been rerouting their vessels through southern Africa, a slower and more expensive route as attacks on ships continue in the Red Sea.

Despite the challenges, Mena economies are expected to continue to grow this year and “there will be an improvement in the growth rate”, Mr Azour said.

“However, this has to be put into context of high uncertainty, the uncertainty at the political level, the uncertainty of the risk of escalation [all of which] cast a shadow on the projections for this year,” Mr Azour told media on the sidelines of the forum.

So far, the Gaza conflict has had a limited impact on economies in the broader Mena region, with Palestine and the neighbouring countries feeling the pain, particularly in sectors such as tourism, he said.