Among the possible consequences of the Gaza conflict, the most troubling is the impact on the global economy. The origins extend beyond Syria or Iran and trace to a fragile corner of the region, a country torn by war and only recently stabilizing. Since last November, Houthi rebels in Yemen have attacked two dozen cargo ships at the Red Sea’s edge, actions framed as support for Palestinians in Gaza. The attacks threaten one of the world’s busiest trade routes, disrupting maritime traffic and driving up costs. Nations allied with the United States warn of the risk of a broader conflict, even as direct clashes between the belligerents appear unlikely for now.
About 85 percent of world trade moves through the seaway, with 15 percent using the Red Sea corridor. This warm water route connects the Mediterranean to the Indian Ocean via the Suez Canal in the north and the Bab el-Mandeb strait in the south. The aim is to shorten sea travel between Europe and Asia. Roughly 8 percent of food grains, 12 percent of global oil, and 8 percent of liquefied gas transit these waters. Yet this corridor has turned into a high-risk zone, pressed by Iran’s allies in Yemen, who deploy speedboats, drones, and missiles. Houthis claim their targets are ships bound for Israel or owned by Israel, but many vessel owners deny any direct ties to the Jewish state.
As international shipping anxiety grows, experts from the International Chamber of Shipping note that about 40 percent of commercial exchanges between Europe and Asia cross the Red Sea in containers. Automobiles, footwear, electronics, raw materials and palm oil flow through this corridor. There is a real potential for a sizable economic impact, though analysts expect the crisis to persist for months before it stabilizes. Acknowledging the uncertainty, economists warn that delays and higher costs could ripple through global markets.
Alternative route passing the Cape of Good Hope
Several major international companies have started rerouting to dodge the Bab el Mandeb Strait and possible Houthi disruptions or hijackings. Giants such as Maersk and Hapag-Lloyd, along with oil groups like BP, have shifted lanes. By the end of December, Bloomberg reported a roughly 40 percent drop in strait traffic. The Cape of Good Hope route, though longer and pricier, offers safer passage by circumnavigating Africa. The added sailing time is about ten days or more, depending on conditions.
Freight rates have risen, and insurance costs have climbed as a result. Yet some experts believe the near-term impact on inflation will be modest since freight prices remain comparatively low. Freightos notes a notable jump in container rates from China to the Mediterranean in December. In the long run, higher transport costs are likely to be passed along to consumers.
The Africa route also presents challenges, such as delivery delays for some large manufacturers. Michelin, with four production sites and thousands of workers, has temporarily adjusted shifts due to sourcing delays for Asian natural rubber used in tires. Inventory management may face distortions as components or raw materials arrive late. Still, the world previously endured pandemic-related supply shocks, and experience could help cushion disruptions this time around.
Historical background
From a historical lens, Houthi measures are seen by many as leverage to push for a broader halt to the Gaza conflict. The 1973 Arab oil embargo was triggered when OPEC restricted crude oil exports in solidarity with allied states, contributing to inflation and economic distress in the United States and other economies. During the Six-Day War era, the Suez Canal’s closure and reopening after years of disruption demonstrated how strategic chokepoints can influence global trade. While today’s political dynamics differ, the lingering risk of escalation persists. Diplomatic strains have included ambassador withdrawals and moments of heightened tension, though the region has not witnessed a full-scale, unified escalation as seen in past decades. As of now, the humanitarian toll in Gaza remains severe, with tens of thousands reported dead and a landscape described as largely uninhabitable by international aid authorities.
coalition led by Washington
The United States appears intent on stabilizing maritime routes and containing broader conflict. The Biden administration has coordinated with a coalition of about a dozen nations to patrol the southern Red Sea, with some operations undertaken in recent weeks. Washington has warned that pro-Iranian militias would be held responsible for consequences they create, calling the strikes illegal, unacceptable, and destabilizing. Official statements continue to emphasize that the Houthis are not targeting oil tankers in every case, yet the risk of wider disruption remains a central concern.
Beyond maritime security, Washington is urging restraint to prevent the Gaza war from spilling into global markets. Pressure is mounting on Hezbollah or other groups near borders to avoid a wider confrontation. The potential for a broader regional conflict poses a major challenge to regional stability and trade flows, making the current crisis the most significant threat to regional and global security since the first days of October.