The Pentagon has revealed than an American-owned commercial vessel has come under attack in the Red Sea. It happened Thursday, the same day that President Biden admitted the US-led Prosperity Guardian has not halted the attacks out of Yemen. "Are they stopping the Houthis? No. Are they going to continue? Yes," Biden conceded in surprisingly blunt Thursday comments.
The US-owned, Greek-operated Chem Ranger was targeted by a pair of anti-ship ballistic missiles, in what was the third such attack on international shipping in three days. "The crew observed the missiles impact the water near the ship. There were no reported injuries or damage to the ship," Central Command said.
This follows closely on the heels of attacks on the US-owned Gibraltar Eagle and the Genco Picardy in the days prior, both which sail under Marshall Islands flags. The Houthis have declared that "we are now in direct confrontation with the US and UK" in the Red Sea, according to the Thursday words of Houthi chief Abdul-Malik al-Houthi.
Not only has the Western coalition patrolling waters off Yemen attacked Houthi positions in four waves of strikes at this point, but the Biden administration put the Houthis back on the global terrorism list. None of this has deterred the Iran-backed rebel group, which has already been battling Saudi and US airpower in the Yemeni civil war that goes back to 2015.
The resultant raised freight costs for the majority of big carriers choosing the more costly journey around Africa has continued the spur in Middle Eastern crude demand. For example, Bloomberg notes "The price of one of the Middle East’s most popular oil grades has jumped in Asia as buyers favor Persian Gulf producers that don’t have to send their crude via the Red Sea or on longer alternative routes"— in reference to Murban oil's premium surging...
The prior economic incentive for Asia to rely on US Gulf Coast imports has effectively closed, given the surging cost of booking supertankers for the long route, making similar Middle Eastern crude oil a more popular choice.
And as for transport of goods, new WSJ analysis observes that European retailers are bearing the brunt of the scramble for alternative routes around the Red Sea:
Those detours are raising freight costs and leading retailers to worry about running out of stock. Some factories have suspended work in the absence of needed parts. Should the threat persist, economists think the decline in inflation Europe enjoyed last year could slow down, pushing back a potential cut in key interest rates.
“This is clearly one of the major downside risks to growth, and upside risks to inflation,” said Ana Boata, chief economist at insurer Allianz Trade. “We could talk about a recessionary risk.”
Outlook not so good, says Biden...
This is peak American foreign policy... When asked if the strikes on Yemen are working Biden replies: “When you say working, are they stopping the Houthis? No. Are they going to continue? Yes.”— Arnaud Bertrand (@RnaudBertrand) January 19, 2024
Literally saying "bombing these folks is useless, but we'll keep doing it". pic.twitter.com/otzJC6hzpS
The report surveys the following companies:
- IKEA boss Jesper Brodin said the Red Sea conflict has lengthened its shipping routes by about 10 days or longer though its customers aren’t affected.
- Discount retailer Pepco said conflict in the Red Sea has had a limited effect on product availability, but could hurt supply in the coming months if it continues. The discount retailer—which houses Poundland in the U.K. and Dealz and Pepco in continental Europe—said Thursday that Houthi attacks on vessels were leading to higher spot freight rates and delays to container lead times.
- Volvo Cars, the Chinese-Swedish automaker, said gearboxes needed to build conventional combustion vehicles at a plant in Belgium were delayed, forcing the company to halt production for three days.
- Volkswagen, Europe’s largest carmaker by sales, said its plants hadn’t been affected, but that it continued to monitor the situation in close contact with its suppliers. VW said it was rerouting shipments, which was causing some delay.
An estimated 40% of the goods traded between Europe and Asia utilize Red Sea transit; however, the experiences of the Covid-19 pandemic and the fact that transit delays and goods blockages are still nowhere close to being on par with the 2020-2021 situation means companies by and large feel confident.
IKEA CEO Jesper Brodin told an audience at the World Economic Forum in Davos that "The huge difference at the moment is that we have recuperated after the pandemic." He emphasized: "So that means our stocks in our warehouse are in good shape." It remains that for most, the real concern is if the Red Sea crisis stretches to six months and beyond.