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Rebel attacks on cargo ships in the Red Sea have been mucking up global trade for weeks, and Western powers have officially had enough.
What happened: U.S. and British jets and warships shot down one of the largest attacks of drones and missiles yet from Iran-backed Yemeni Houthi rebels on a ship passing through the Red Sea.
Catch-up: The Houthis, a rebel group in Yemen, have attacked around two dozen cargo ships since mid-November. They were initially targeting Israeli or Israel-bound cargo ships in retaliation to the war against Hamas, an ally, but are now seemingly attacking any vessel.
- A coalition of more than 12 countries, including Canada, the U.S., and the U.K., warned the Houthis to stop attacks or face repercussions, a threat that has not been heeded.
Why it matters: The cost of shipping a standard 40-foot container has nearly doubled as a result, due to higher insurance premiums and ships taking longer routes to avoid the region. These costs will be passed down to consumers as producers try to offset shipping expenses.
- The world’s 10 biggest cargo ship operators have already re-routed over US$200 billion worth of cargo around the Horn of Africa since early December.
What’s next: Though the U.S. and U.K. have beefed up their presence in the Red Sea, neither have launched a direct attack against the Houthi military targets on land — wary of the geopolitical ramifications. However, this most recent Houthi strike could be the last straw.
Bottom line: Continued attacks will be a migraine for the world economy. According to one analysis, long-term shipping disruptions could boost global inflation by up to 0.5%.—QH