Yemen’s Houthi rebels are increasing their attacks on ships in the Red Sea, claiming revenge against Israel for its military campaign in Gaza.
Following warnings from the Biden administration that the Houthi group would face the repercussions of its repeated attacks, the US and UK initiated attacks on Houthi targets in Yemen. In response, international oil and shipping companies have been compelled to halt shipments along strategic maritime trade routes, which could have a profound impact on the global economy.
The Houthis’ attacks, allegedly aided by Iranian weapons and training, have sparked fears that Israel’s war with Hamas could escalate into a wider regional conflict and cause a long-lasting effect on the markets.
The Brief History of the Conflict
The Yemeni civil war has been ongoing for nearly a decade, with the Houthi movement as one of the main sides. The Houthis emerged in the 1990s as a religious revival movement for Zaidis, a marginalized subsect of Shia Islam.
The war began in 2014 when Houthi forces overthrew the government and escalated when Saudi Arabia intervened. Despite a ceasefire in 2022, the Houthis have consolidated control and are seeking an agreement with the Saudis.
However, the war has led to one of the worst humanitarian crises in the world, with millions facing food insecurity and displacement. The conflict has also caused significant damage to infrastructure and the economy, leading to the region’s widespread poverty. Along with that, the Houthis have managed to show improvements in their weapons technology, using them against Israel and commercial ships in the Red Sea.
How The Markets Respond to the Red Sea Crisis
Major shipping companies, including MSC, Maersk, CMA CGM, COSCO, Hapag-Lloyd, and Evergreen Marine Corporation, suspended ship traffic through the Red Sea due to the attacks. BP and Tesla also halted operations due to supply chain issues caused by the conflict escalation. Other ships took alternate routes around Africa.
However, bulk carriers and tankers continued to use the strait. China Ocean Shipping Company and OOCL stopped services to Israel, while Qatar halted LNG shipments through Bab al-Mandeb Strait. Shell has suspended all Red Sea shipments indefinitely, with some ships broadcasting “No contact Israel” on their automatic identification systems in response to a Houthi request.
The stock market experienced increased volatility in response to the Red Sea crisis, with traders closely monitoring developments and adjusting their positions accordingly. Heightened geopolitical tensions often lead to market uncertainty, causing fluctuations in stock prices as investors react to changing risk perceptions.
During periods of geopolitical instability, sectors sensitive to global trade and energy prices, such as transportation, oil, and gas, may see increased volatility. On the other hand, traders and investors seeking refuge from market uncertainty closely eye the gold chart as historically safe-haven assets gain traction amid global market unrest.
Overall, the situation remains fluid, with ongoing security concerns and potential geopolitical implications requiring continued monitoring and analysis by investors, policymakers, and stock trading platforms alike.
