The Red Sea, a vital artery of global trade, is experiencing unprecedented turmoil due to Houthi attacks on merchant vessels. These assaults are not only endangering lives and cargo but also wreaking havoc on shipping logistics and financial stability, particularly affecting the Suez Canal, Egypt’s economic lifeline.
The Houthi insurgents’ campaign against merchant shipping has intensified, leading to severe disruptions. From officer shortages and sailor fatalities to escalating attack numbers, the ramifications are far-reaching. One of the less obvious but significant impacts is the financial strain on Egypt due to decreased Suez Canal traffic.
The Suez Canal, a crucial sea-level waterway, connects the Mediterranean and Red Seas, providing the shortest maritime route between Europe and the Indian and western Pacific Oceans. Spanning 193 kilometers from Port Said to Suez, this canal is a cornerstone of Egypt’s economy. Following its expansion in 2015, the canal’s revenues surged, hitting a record $9.4 billion in the fiscal year ending June 30, 2023. This remarkable figure represented a 35% increase over the previous year and accounted for over 2% of Egypt’s GDP.
However, the ongoing conflict has drastically reduced canal revenues. The International Monetary Fund (IMF) reported a 50% decline in Suez Canal trade volume in the first two months of 2024 compared to the previous year. Conversely, traffic via the Cape of Good Hope increased by 74%. This shift underscores the substantial economic impact of the Houthi attacks.
In May 2024, Suez Canal crossings plummeted to 1,111, a stark contrast to the 2,724 crossings in May 2023. This 79% reduction highlights the severity of the situation. Consequently, Suez Canal Authority (SCA) revenues fell to $337.8 million in May 2024, down from $648 million the previous year. This downturn is projected to result in a $3.5 billion revenue loss for Egypt in the current fiscal year.
The disruption in the Red Sea has forced many shipping companies to reroute via the Cape of Good Hope, a longer and more expensive journey. For instance, a containership traveling from Shanghai to Rotterdam via the Suez Canal covers approximately 10,600 nautical miles in about 27 days. In contrast, the Cape route spans 13,800 nautical miles, extending the voyage to 35 days.
Even in times of peace, some companies opted for the Cape route due to various factors, including incidents like the 2020 grounding of the Ever Given, which temporarily blocked the Suez Canal. The current situation has exacerbated this trend, with over 100 ships targeted by Houthi attacks in a show of support for Hamas’s conflict with Israel.
The SCA has responded by offering discounts of 15% to 70% on transit fees to attract vessels back to the canal. Despite these efforts, the ongoing conflict and risk of Houthi attacks continue to deter shipping companies. The Red Sea remains a hazardous zone, with increased insurance rates and charter costs further complicating the situation.
The Israel–Hamas conflict shows no signs of resolution, and the Houthi threat persists, making a return to normal trade patterns unlikely in the near future. Diversions to the Cape of Good Hope are expected to continue into 2025 and beyond, prolonging Egypt’s financial woes.
In conclusion, the Houthi attacks on merchant vessels are profoundly impacting global shipping and Egypt’s economy. As the conflict rages on, the Suez Canal’s once-thriving revenue stream is dwindling, leaving Egypt to grapple with significant economic losses and an uncertain future.
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Disclaimer: All images in this article were generated using Leonardo AI and Gemini to provide a visual representation of the discussed topics.
