Iranian-backed Houthi rebel groups are carrying out attacks on cargo ships in the Red Sea. These are continuous attacks as a result of the US and Iranian proxy war in Yemen. These attacks are a supportive response to the Palestinian militant group Hamas in their war with Israel. This has caused shipping groups to alter their trade routes from the Red Sea which has had major economic ripple effects. With roughly 12% of global trade moving through the Red Sea, these disruptions are expected to exacerbate inflationary pressures in the United States and China as well as contribute to escalating tensions between the United States and Saudi Arabia with Yemen and Iran.
The attacks stem from the Yemeni civil war between the Houthis and the Yemeni government. The Houthi rebel group has been supported by Iran while the Yemeni government has been supported by Saudi Arabia, the United States and a coalition of nine other countries from the North Africa and West Asian region. Despite low violence between the Houthis and the Yemeni government in recent years, the Houthis have increased their campaign on shipping attacks since November 2023. This is in response to the war between Israel and the Palestinian militant group Hamas, in which the Houthis have directly stated that their attacks on global shipping will continue until Israel stops its assault on Palestinians in Gaza. Since November there have been roughly 30 attacks on cargo ships from direct drone or missile strikes.
Red Sea attack monitor. Credits to Dragonfly Intelligence.
The attacks have caused major economic effects and raised political tensions between the United States, Iran, and Saudi Arabia. recently, the United States and the United Kingdom launched strikes against Houthi targets. to protect shipping in the Red Sea, which has become especially important with the severe droughts affecting the Panama Canal. These strikes come a day after a joint statement was released on behalf of the governments of Australia, Bahrain, Denmark, Canada, the Netherlands, New Zealand, the United Kingdom, and the United States, clarifying that these precision strikes are in response to the international commercial shipping attacks.
Prolonged Houthi attacks on commercial shipping are forecasted for the foreseeable future with Israel unlikely to back down. The economic implications will be felt worldwide. China is demanding that Houthi rebels rein in their attacks. China is experiencing major contractions from a debt crisis in the housing and property sector. With inflationary pressures, Beijing stated that Iranian businesses would be hurt if Chinese businesses were also hurt. With China being Iran’s biggest trading partner this vague threat could have some coercive effect as they are funded by Iran. Europe will continue to experience increased prices in goods and energy as most of the products traveling through the Red Sea are bound for Europe. These rises in prices will contribute to inflation across Europe and will likely exacerbate the rising cost of oil due to Europe’s reliance on the Middle East.
The intertwining of two complex wars to global economic ripples makes this issue exceptionally complex. Although the Houthi rebel group has made their stance clear, that they will not stop shipping attacks until Israel has discontinued attacks on Palestine and Hamas, the United States is in a powerful position both militarily and economically to coerce or forcefully halt these attacks. The first step is for the United States to engage in talks with China regarding their crippled economy. This step is likely to occur this week in Beijing. During re-engagement, the United States needs to address China’s trade relations with Iran. Specifically, the United States should demand that China decrease exports to Iran. This demand will likely be contentious between the two geopolitical rivals, however, the United States should either urge China to decrease exports to Iran or threaten to use sanctions if Houthi rebels fail to rein in their attacks. Threatening to use sanctions, as Iran’s biggest trade partner, should send a message directly to Tehran and Houthi leaders.
In the course of this time, the United States should also demand Netanyahu to rein in Israeli forces against Hamas and the Palestinian people. This showing of reciprocity between the China and Iran coalition to the United States and Israel coalition could foster more neutral feelings towards each other. These steps would lead to a more long-term plan for the Middle East aiming for more peaceful relations. If these steps fail, the United States should continue to build upon their coalition that issued the joint statement on precision attacks on the 32 Houthi targets. It is clear that even without additional economic pressures, Iran might still rein in further escalation to maintain friendly relations with China. The United States continued aggression combined with China’s economic threats could further dissuade Iran from allowing the Houthis to continue their attacks. However, this assumes that Houthi practices are dependent on Iranian support, not taking into account the possibility that Houthi rebels have the capability for autonomy.
The Red Sea attacks are examples of lose-lose situations where the global macro economy loses and the parties involved in the attacks (i.e. Houthis) gain nothing except for a more extreme reputation. The complexity of relations between the states involved makes this a precarious issue. The only certainty behind preventing further attacks is for the United States to help engineer an incentive, either militarily or diplomatically, to have Iran rein in Houthi attacks or to engage militarily with the rebel group. The critical juncture of China’s debt crisis and its trade relations with Iran provides a window of opportunity for the United States to demand China decrease trade support to Iran to alleviate financial burdens on Chinese citizens. This loss of a major importer sends a clear message for Tehran to pull back Houthi engagement in the Red Sea. A less diplomatic solution would be for the United States to continue launching retaliatory strikes since there is already a looming economic threat to Iran. The Biden administration should continue to dissuade Netanyahu from further escalation and work towards further coalition building especially with European nations most affected by the commercial shipping disruptions.
Author: Tucker Henry
