The Red Sea Crisis: Who Is Benefiting?

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The Red Sea Crisis has emerged as a significant geopolitical event with profound implications for global trade and maritime security. The crisis escalated as the Houthis targeted ships in the Bab al-Mandeb Strait which has disrupted global trade and shipping routes, causing a significant economic ripple effect. While the crisis casts a dark shadow on global trade, certain actors might be glimpsing a silver lining, benefitting from the situation both internationally and unintentionally. It seems China has emerged as major beneficiary along with African nations, Israel, and even the Houthis to some extent. On the other hand, it is the United States and developing economies like India and Bangladesh are affected by the crisis due to their perceived loss on both political and economic grounds. However, within this milieu of potential advantages for some and disadvantages for others, it is important to acknowledge this crisis carries grave risks for all nations that cannot be ignored if it is not resolved properly.

The Red Sea Crisis and Its Impact on Global Economy

The crisis started when Houthis started attacking commercial ships link with Israel, starting with the Galaxy Leader in mid-November last year. The Houthis, a Yemeni rebel group aligned with and supported by Iran, declared war on Israel at the end of October. Unlike other Muslim countries and groups that refrained from supporting Hamas in Gaza, the Houthis actively engaged in hostilities against Israel. The situation has intensified in the past few months, marked by the interception of Houthi drones and missiles by US, French, and British warships. A coalition has already been informed named Operation Prosperity Guardian (OPG) to counter the Houthis attacks.

Figure 1: The Red Sea and Bab al-Mandab Strait

The impact of these attacks is evident as the Red Sea is vital for global trade. Acting as a vital link connecting Asia to Europe and the Mediterranean through the Suez Canal, the Red Sea handles about 12% of the world’s trade, including 30% of global container traffic. The Bab al-Mandab Strait, located between Yemen and Djibouti, serves as one of the busiest global oil transit points. Its strategic position near the Indian Ocean and the Persian Gulf reduces shipping distances, facilitating international trade with approximately 33,000 merchant ships passing through annually.

Figure 2: Alternative Route Due to the Red Sea Crisis

Following the attack, six of the ten largest container shipping companies—Maersk, MSC, Hapag-Lloyd, CMA CGM, ZIM, and ONE—have significantly reduced or completely halted operations in the Red Sea. The perceived dangers to crew, cargo, and vessels have led these companies to redirect their ships away from the Red Sea, choosing the longer route around the Cape of Good Hope in South Africa. This strategic change has resulted in notable delays, with voyages extended by up to three weeks, covering an additional 3,500 kilometers. This shift in shipping routes has led to a significant 4 percent increase in crude oil prices, reaching approximately $78 per barrel, while overall traffic through the Red Sea has dropped by more than 40 percent. While the conflict undoubtedly poses challenges to global trade and regional stability, certain actors appear to navigate the choppy waters, seeking advantage in unforeseen currents.

Beneficiaries from the Red Sea Crisis

The Red Sea Crisis presents a complex geopolitical puzzle, where potential beneficiaries emerge amidst a backdrop of broader disruption and risk.

China, often seen as a challenger to the US-led global order, finds itself in a curious position. The US has sought Chinese diplomatic intervention to de-escalate the conflict, inadvertently providing China with an opportunity to extend its influence and assume a more prominent security provider role in the region. The Houthis have already announced that the group will not target ships bearing Chinese and Russian flags in the Red Sea which signifies China’s strategic insulation from the crisis, showcasing its diplomatic finesse. At present, vessels navigating the straits into the Red Sea consistently take measures to prominently showcase Chinese flags and utilize their satellite identification data to declare their affiliations with China. Reports indicate a significant increase in the number of ships traversing the area, preemptively indicating that they have Chinese crew, rising from less than two per day to over 30 by late January.

Most importantly, China has made substantial investments in developing infrastructure to establish global maritime and land connections through its ambitious BRI projects. No doubt, it further strengthens its position amid the disruptions in major maritime routes which proves that China was ahead of the curve than other countries. This crisis potentially propels China into a more significant global leadership role, especially if it succeeds in mediating a resolution to the conflict. Xiao Yun Hua, a Chinese professor and military expert, said that the “rise of land transportation” will bring significant benefits to China. He further suggests that current developments could serve as a catalyst for “weakening the influence of American maritime hegemony and striking a blow to the US hegemonic system”.

Moreover, the Red Sea crisis serves as a justification for Chinese growing naval power, as evidenced by requests for its intervention. This confluence of factors suggests a potential power shift in the global order, with China capitalizing on the Red Sea crisis as an opportunity to reshape the political landscape and fill void in international power structure.

However, it would be too straightforward to declare China is only benefitting from the war without paying any costs. China, being the largest trading nation in the world, has a significant stake in the Red Sea due to its crucial role in global trade. Europe, which is China’s major trade partner, sees more than 60% of their trade value passing through the Suez Canal. In recent years, Chinese companies, like the state shipping giant COSCO, have invested billions in assets in the region, such as a 20% stake in the East Port Said container terminal of the Suez Canal. Recently, it has abandoned the Red Sea route after the attack, although smaller Chinese shipping companies are capitalizing on the crisis. The shift to longer shipping routes might increase import prices, potentially causing inflation and hindering Chinese economic recovery.

In this backdrop, Chinese officials have asked Iranian government to exert pressure on the Houthis to curb their attacks. Chinese Foreign Minister Wang Yi asserted, ‘China has been making active efforts to ease tensions in the Red Sea from the very beginning.’ However, many Western politicians and scholars have criticized such blunt response from China which does not Beijing’s global aspirations. China, in response to such criticisms, has cited its foreign policy principles of non-interference and non-aggression. Rather, it prefers diplomatic solution through discussion with all relevant parties to maintain regional peace and stability.

However, from a political point of view, this scenario presents a win-win situation for China. If the threat persists, Chinese vessels enjoy comparatively safer passage than their counterparts. On the other hand, if Beijing actively presses Iran to curb Houthi attacks, China would emerge as the de facto primary security provider in the Middle East.

Besides China, Africa emerges as a potential beneficiary, experiencing increased traffic through its ports as shipping routes circumvent the Red Sea via the Cape of Good Hope. This presents economic opportunities for African nations bordering the southern tip of the continent. For Israel, the crisis might offer a strategic advantage by deflecting international attention away from its actions in Palestine, providing some “breathing space” amidst criticism. Israel has also succeeded in dragging the US into the conflict, creating a new front that diverts attention from Gaza. The Houthis, despite condemnation for their attacks, gain popularity and leverage as key players in the conflict which might help it to achieve its goals in the future.

Conversely, the US faces potential setbacks. Despite its military intervention, the US has struggled to effectively address the crisis, facing the risk of becoming entangled in a prolonged conflict with Iran. The decision to target Houthi positions reflects a cautious approach by the Biden administration, mindful of the potential repercussions on Biden’s reelection bid. This situation raises doubts about the US’s ability and willingness to safeguard its strategic interests, contributing to the perception of a weakening its naval deterrence. Furthermore, the limited involvement of key allies like Canada, Australia, and Saudi Arabia in OPG, along with the refusal of France, Italy, and Spain to accept US command, signals a lack of robust international support for the US stance.

Besides the US, it is the growing economy like India and Bangladesh who are heavily reliant on trade, faces significant economic blows due to increased shipping costs. Amid the Red Sea crisis, India, the world’s leading rice exporter, confronts a challenging scenario. Approximately 35 percent of its rice production is exported to Europe, North America, North Africa, and the Middle East through the Red Sea. The surge in freight costs, reaching up to five times the previous rates, coupled with increased insurance premiums, poses significant hurdles for Indian exporters in marketing their products globally. Bangladesh, heavily reliant on Red Sea, faces a similar predicament, with over two-thirds of its exports to Europe and America passing through these routes. Additionally, 8-10 percent of Bangladesh’s imports are conducted via the Red Sea. Any prolonged conflict in the region stands to incur substantial financial losses for these economies, running into billions of dollars.

Figure 3: Shift in Trade Route for Bangladesh

However, it is crucial to acknowledge that going beyond these cost and benefit calculation, this crisis has already destabilized an already fragile region, impacted global trade, affected marine environment, and fueled humanitarian crises. While some actors might capitalize on the situation, the wider consequences demand responsible diplomacy and collaborative efforts to de-escalate and seek peaceful solutions.

The Red Sea Crisis serves as a stark reminder of the interconnectedness of the world, where actions in one region have the potential to ripple across the globe, impacting both those who stand to gain and those who stand to lose. As the situation unfolds, continued monitoring and analysis are crucial to identify and address the complex interplay of geopolitics and geoeconomic considerations, ensuring that long-term solutions prioritize regional stability and global well-being. Only through such efforts can the global community navigate this labyrinthine crisis and mitigate its detrimental effects on all involved parties.

– Muhammad Estiak Hussain is a Research Assistant at the KRF Center for Bangladesh and Global Affairs (CBGA).

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