Red Sea war

 

 

The Red Sea is a captivating stretch of water nestled between Africa and the Arabian Peninsula. It's renowned for its:

  • Crystal-clear waters: Perfect for diving and snorkeling, offering mesmerizing views of vibrant coral reefs teeming with colorful fish.
  • Warm temperatures: Enjoy balmy year-round weather, making it a popular winter escape and diving paradise.
  • Arid landscapes: Surrounding the sea are dramatic deserts and mountains, creating a stunning contrast with the azure waters.
  • Rich history: Used as a vital trade route for millennia, it holds significance in various cultures and religions.

But what is the economic significance of the Red Sea? A trillion dollars worth of goods pass through the red sea. That is roughly 12 percent of global trade.  

This route is crucial because it connects Asia and Europe. To reach Europe from Asia by sea, ships must either pass through the Red Sea or navigate all the way around Africa


Passing all around Africa will delay shipping time by 2 weeks making trade far more expensive due to rising fuel costs and slow down global trade.  


After having understood the criticality of the Red Sea what is really stopping trade through the Red Sea.  


The Houthis:

The Houthis are a complex and multifaceted group in Yemen

Origins and Beliefs:

  • Emerged in the 1990s as a religious and political movement.
  • Advocated for social justice and challenged the Yemeni government, which they accused of corruption and favoring Sunni Muslims.

Rise to Power:

  • Gained popularity through social programs and opposition to government policies.
  • Took control of the capital, Sanaa, in 2014, prompting a civil war and Saudi-led military intervention.
  • Currently control much of northern Yemen and the capital. around 70 percent of Yemeni population

The Houthis have been frequently carrying out attacks on ships associated with the west passing through the region of the Red Sea. 

This massive disruption caused by the Houthis has scared ship companies and a lot fewer ships are going through the Red Sea and prefer taking the long route. Ship insurance companies have also started charging much higher insurance premiums to cargo ships. 
War risk premiums have risen this week to between 0.1%-0.15% to 0.2% of the value of a ship, from 0.07% last week. For ships that cost hundreds of millions this increase in insurance cost that is charged as a percent of the ships value is very high. 


With the recent Russia-Ukraine war European economies have started avoiding Russia and importing more oil from the Middle East. With rising shipping costs and delayed trade, the economic effects can be disastrous.  Experts agree that in theory, the Red Sea crisis could cause rising shipping costs and oil costs, leading to a resurgence in global inflation that would force the Federal Reserve to keep interest rates higher for longer. 

The Red Sea crisis is very serious and must be taken seriously as this can have disastrous effects on global Economy












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