Summary
The ongoing Houthi attacks in the Red Sea have significantly disrupted shipping routes, particularly through the Suez Canal, which is crucial for global trade. As a result, shipping companies have been forced to reroute vessels around Africa, leading to increased costs and delays that have adversely affected economies in Egypt and Israel, among others.
The Suez Canal, which handles about 12% of the world’s trade and 40% of Asia-Europe trade, has seen a marked decrease in traffic since the Houthis began targeting ships linked to Israel in November 2023. This escalation in maritime conflict has led to a dramatic rise in shipping costs, with some analyses indicating that expenses have more than tripled. The diversion of shipping traffic to the longer route around the Cape of Good Hope adds approximately 14 days to transit times, further exacerbating the financial burden on global trade.
Economic Impacts on Egypt
Egypt has heavily invested in the Suez Canal, aiming to boost its revenue through upgrades and expansions. However, the recent drop in canal traffic has resulted in a nearly 25% decline in revenue, from $9.4 billion in 2022-2023 to $7.2 billion in 2023-2024. This decline is compounded by the broader economic challenges faced during the COVID-19 pandemic and ongoing geopolitical tensions.
Economic Impacts on Israel
Israel’s economy has also been severely impacted by the Houthi attacks, as the country relies heavily on imports to meet its needs. The attacks have rendered the Israeli Red Sea port of Eilat nearly inactive, forcing goods to be transported overland at significantly higher costs. This situation has led to increased consumer prices and has strained Israel’s fiscal policies, with budget deficits rising above acceptable levels. The extended conflict has also prompted an outflow of skilled workers from Israel, further complicating the economic landscape.
Conclusion
The Houthi attacks in the Red Sea represent a significant disruption to maritime trade, with far-reaching consequences for the economies of Egypt and Israel. As shipping companies continue to seek alternatives to the Suez Canal, the ripple effects of these conflicts highlight the interconnectedness of global trade and regional stability.
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