July 21, 2024
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OIL & GAS

How Intensified Houthi Attacks Escalating Maritime Risks in Red Sea

Iran-backed Houthi rebels have ramped up their missile and drone attacks, targeting commercial vessels in the southern Red Sea, the crucial Bab el-Mandeb strait, and the Gulf of Aden. Alarmingly, the rebels have threatened to extend their operations to the Mediterranean Sea.

The recent sinking of the Tutor dry-bulk carrier by a kamikaze drone boat represents a notable escalation in the conflict. This ongoing turmoil has led to soaring containerized freight and insurance costs.

According to OilPrice.com, conversations with two individuals familiar with the maritime insurance market revealed that the cost of insuring a commercial vessel for transit has increased from 0.3%-0.4% to 0.6% of the ship’s total value. For instance, insuring a vessel worth $50 million now costs upwards of $300,000 per voyage. Although this rate is slightly below the peak earlier this year when attacks surged, it is expected to rise if Houthi attacks persist through the summer.

The sinking of the commodity-hauling bulk carrier by a drone boat this week was a wake-up call for the shipping and commodity industries, highlighting the limitations of President Biden’s Operation Prosperity Guardian in countering relentless Houthi attacks on commercial ships in this vital shipping lane. This incident marked the first time a ship was sunk by a drone boat in the Houthis’ multi-month campaign.

Dirk Siebels, a senior analyst at Risk Intelligence, commented on the escalation, stating, “It’s another indicator that the Houthis are stepping up their attacks on those vessels that were warned not to pass through the Red Sea.” Bloomberg noted that Western-linked vessels are primarily targeted, leading to higher insurance costs, while Chinese vessels continue to receive significant discounts.

In addition to rising insurance costs, the diversion of vessels from the Red Sea to routes around the Cape of Good Hope is causing containerized shipping costs to skyrocket. This shift is straining global containerized capacity, resulting in significant increases in shipping costs for 40-foot containers and creating logjams at major ports, including the Port of Singapore.

Samuel Cranny-Evans, an associate fellow at RUSI, a London-based think tank, warned that drone boats “can be difficult to intercept.” The increased insurance premiums and freight costs are contributing to persistent inflation. David Asher, a senior fellow at Hudson Institute, remarked, “Iran is defeating US deterrence and counterstrike in the Red Sea. The stage is set for a similar fight in the Gulf,” underscoring the rising war risks.

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