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Attacks by Iranian-backed militants in the Red Sea have effectively shut down one of the world's main trade routes for most container ships.
Six of the 10 largest container shipping companies are largely or completely avoiding the Red Sea because of the threat from Houthi militants, CNN writes.
A prolonged shutdown of this waterway, which connects to the Suez Canal, could disrupt global supply chains and raise the prices of manufactured goods at a crucial time in the battle to beat inflation. The Suez Canal accounts for 10-15% of world trade, which includes oil exports, and 30% of global container shipping volumes. As the crisis escalates, the consequences for the global economy are growing.
Tesla is halting most production at its giant electric car factory in Germany because the attacks have disrupted the supply of parts. Retailers are warning of delivery delays and the cost of moving goods by sea is rising. Oil prices are also rising, up 2 percent in the US. This reflection comes as a result of fears of a wider regional war that could disrupt the supply chain.
"Global trade fell by 1.3% from November to December ," Germany's Kiel Institute for World Economics said Thursday, citing the aftermath of attacks on cargo ships in the Red Sea.
In a biannual report published on Tuesday, the World Bank warned that disruption to key transport routes was raising the likelihood of inflationary headwinds. Already, transportation costs have increased, which may eventually be reflected in consumer prices.
“The longer the disruptions continue, the stronger the stagflationary effects for the global economy,” Allianz chief economist Mohamed A. El Erian wrote last week in X.
If the Israel-Hamas war escalates into a wider regional conflict or the Houthis decide to redirect their attacks on oil tankers and bulk carriers – which transport important raw materials such as iron ore, grain and timber – the consequences for the global economy would be more severe.
“In an environment of escalating conflicts, energy supplies can also be substantially disrupted, leading to an increase in energy prices. This would have significant impacts on other commodity prices," the World Bank report added.
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