Escalating tensions in the Red Sea are raising concerns about oil price volatility and disruptions to global trade, according to Moody’s Investors Service and the International Monetary Fund (IMF).
The American credit rating agency warns that ongoing shipping disruptions in the Red Sea, fueled by Houthi rebel attacks, could lead to increased oil price volatility, spikes in shipping rates, and higher marine insurance costs.
While acknowledging that these price increases are unlikely to significantly impact inflation or monetary policy, Moody’s analyst Benedicte Andries cautioned about a “downside scenario” with “much more severe shipping disruption.” In such a situation, she predicts “materially increased credit risk” for various European industries, including retail, manufacturing, and automakers.
The impact of these disruptions is already being felt. The IMF’s Jihad Azour reports a nearly 30% decline in Red Sea container traffic due to Houthi attacks, attributing adverse economic consequences across the region to the broader Israel-Hamas conflict.
He highlighted the impact on value chains and various sectors, echoing earlier reports from the UN about a 40% drop in commercial traffic through the Suez Canal in recent months.
Industry leaders are bracing for continued disruption. Hapag-Lloyd CEO Rolf Habben Jansen believes the attacks are unlikely to stop soon, potentially forcing companies to bypass the Suez Canal. He suggests a political solution and protection for cargo vessels as potential remedies within the next six months.
The Suez Canal’s significance cannot be overstated. As per a January IMF report, roughly 12% of global trade in the first half of 2023 relied on this crucial waterway connecting the Red Sea to the Mediterranean. Additionally, around 15% of global shipping traffic and a significant portion of Egypt’s foreign currency income depend on this vital route.