Disruptions cause devastating damage to global supply chains – Analysis – Eurasia Review

According to the first official and public assessment by US intelligence agencies on the economic impact of the activities of the Iran-backed Houthi rebels in Yemen, their attacks on merchant ships in the Red Sea led to a 90% decline in container transport in the region between December and February, reports Al-Monitor.

The Pentagon’s Defense Intelligence Agency (DIA) found that the attacks affected at least 65 countries and caused at least 29 major energy and shipping companies to change their routes. British Petroleum, Evergreen, CMA CGM, Maersk, Qatar Energy and Shell are some of the companies that felt the pressure.

Many ships chose to detour around the Cape of Good Hope in South Africa, adding about 20,000 kilometers (11,000 nautical miles) and at least 10 extra days to each voyage. This detour increased fuel costs by about 8.2 million rupees ($1 million) per voyage. The DIA said the threats to shipping in the Red Sea added further pressure to global shipping, which was already struggling with disruptions at the Panama Canal due to the drought.

The report mentioned that insurance premiums for ship travel through the Red Sea had increased significantly. By mid-February, premiums had risen to 0.7 to 1 percent of a ship’s total value, compared to less than 0.1 percent before December 2023. Shipping through the Red Sea normally accounted for 10 to 15 percent of global trade. The report also noted that the attacks in the Red Sea had affected humanitarian efforts and caused weeks-long delays in aid to Sudan and Yemen.

The Houthis began increasing their attacks on merchant vessels in the Red Sea in mid-November. At first they claimed they were targeting ships travelling to and from Israel, as Israel is fighting Hamas in Gaza. But the Houthis soon began attacking merchant vessels from other countries, including Israel’s allies such as the US and the UK.

To prevent the attacks, both countries launched a series of air strikes on rebel targets in Yemen and imposed sanctions. Washington also created Operation Prosperity Guardiana naval coalition of 20 countries is supposed to protect international shipping in the Red Sea. However, these efforts have not stopped the rebels and the attacks continue.

Impact on Indian trade

About 80% of India’s trade in goods with Europe passes through the Red Sea. This affects important products such as crude oil, auto parts, chemicals, textiles, iron and steel. Higher freight costs, insurance premiums and longer transport times could make imported goods significantly more expensive. According to an economic study citing a CRISIL report, ongoing disruptions to trade routes could affect the capital goods sector and lead to unwanted inventory build-up. mint.

The conflict also affected Middle Eastern fertilizer exports to India, particularly imports of potassium chloride from Jordan and Israel.

Shipping on the Panama Canal

Bloomberg reports that the Panama Canal has prevented a shipping crisis that could have affected $270 billion worth of global trade each year. This was achieved through careful water management and a lucky coincidence. Last year, due to drought in the Central American country, the Panama Canal Authority (PCA) limited the number of ships allowed through each day to 22 – or about 60% of the usual traffic. To avoid the long waits, which stretched over two weeks, boaters paid millions of dollars to move up in the queue.

In response to rising water levels, the PCA recently began raising the limit on daily ship passage. On Tuesday, it announced that only 34 ships will be allowed to pass through the canal per day from the end of July, approaching the limit of 38 ships that existed before the drought. Boaters will now have to wait less than two days to cross the canal. If rains continue as expected, the canal could return to full capacity next year, the authority said in a written statement.