Houthis causing negligible damage to Israeli trade – study

Despite numerous concerns about shipping bottlenecks as occurred in the wake of the Covid pandemic, the Houthi blockade of the Bab al-Mandab Strait in western Yemen has not caused any significant damage, according to a new study by the Bank of Israel, Haggai Etkes and Nitzan Feldman of the University of Haifa’s School of Political Science.

Shipping rates have been rising, but these increases have declined significantly in the past six months due to the impressive flexibility of the global system and the efficient transfer of resources by shipping companies. In addition, the impact on Israel is marginal to nonexistent – due to Israel’s extensive trade with Europe, which is not affected by the Straits blockade, and early preventive measures, which softened the blow over time.

Following the outbreak of war in October 2023, Houthi rebels, supported by Iran, joined attacks on Israel. In addition to firing ballistic missiles at Israel, they have also blocked most ships passing through the Bab al-Mandeb Strait. The strait provides the only passage for the Suez Canal, connecting the Indian Ocean to the Mediterranean Sea and saving the long journey around Africa. Given the recent experience of a severe bottleneck of international trade in the wake of the Covid pandemic, which has seen transport prices rise tenfold, there have been concerns about a new trade backlog that would increase the cost of living and hamper economic growth, as has already happened after the global economic shutdown. The Suez Canal in the sixties and seventies.

Trade was diverted to alternative routes

However, despite an almost six-fold jump in freight rates on the Shanghai-Genoa route, which usually passes through the Bab el-Mandeb Strait, prices have fallen dramatically in the past six months to “only” doubling prices on New Year’s Eve. war. Because shipping costs represent only a small portion of the price of goods, this means the impact on the cost of living is relatively small. Trade was diverted to alternative routes, especially sailing around the Cape of Good Hope in Africa, and although the route took longer and consumed more fuel, it was a sufficient alternative to reduce the impacts. Although the diversion of resources from other shipping routes (e.g., in the Pacific) increased prices on these routes, it also helped mitigate the damage caused by the closure of the straits.

In contrast to the situation in the 1960s and 1970s, the study authors wrote, “globalization processes and continuous improvements in maritime transport in recent decades – including reduced regulation of the maritime transport market, the expansion of container use and the digitization of transport information – make it easier for shipping companies to respond more effectively.” Flexibility to changes in transportation markets. In other words, it appears that market mechanisms are beginning to assert themselves, significantly reducing the influence that the Houthis have tried to create in order to pressure the world to stop the Israeli war in Gaza.

Israel, which is actually the Houthis’ main target, was barely affected. The study presents it as “a notable exception: the value of Israeli imports from Asia and Oceania, which are usually transported via the Red Sea, even before the Houthi attacks, declined at a rate similar to the decline in the value of imports from the rest of the countries.” Also from the world, prices for imports to Israel remained stable and did not appear to be affected by the change in shipping routing.

The reasons for this, according to the study, are that Israel’s trade routes with Asia were initially small compared to most Western countries, and the volume of imports generally decreased due to the effects of the war. In addition, “the Israeli shipping company ZIM, whose main port is in the city of Haifa, rushed to redirect its ships to alternative shipping routes around Africa, as early as November 2023, before other shipping companies did so, in December 2023, which caused The decline in imports to Israel will be more gradual compared to the decline recorded in other countries.

Published by Globes, Israel Business News – en.globes.co.il – on December 11, 2024

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