Houthi Red Sea Attacks Impose ‘Economic Sanctions’ on Israel’s Backers

Jim Krane

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More than 50 Houthi attacks on Red Sea shipping since October 2023 have created uneven disruptions of global shipping traffic. Emerging patterns suggest advantages for some countries and firms, with disadvantages for others.[1] Houthi targeting appears loosely based on national origin of the carrier or its cargo. Vessels and cargoes linked to Israel, the United States, and Europe are mostly unable to use the cost-saving Red Sea shortcut, while those without such ties appear free to use the route unmolested.

The Houthi anti-shipping strategy represents a new form of internationalization of the Israeli-Palestinian conflict. In this case, a resource-poor but determined armed group is using inexpensive weapons to reshuffle maritime trade in ways that increase costs for Israel’s backers. The Houthi have repeatedly stated that their attacks aim to increase pressure on Israel to end the conflict in Gaza. While the means are indirect, they pose new challenges to global norms around freedom of navigation and the oversight role of great powers.

These Houthi actions are imposing new costs and monetary damages onto shipping firms, with the highest costs falling on Western-linked firms taking the roughly two-week detour around the Cape of Good Hope at the southern tip of Africa. Meanwhile vessels linked to nonaligned countries gain a competitive advantage by avoiding the expense of diverting around the Cape. In that sense, the attacks resemble targeted economic sanctions on Israel and its allies. Countermeasures in the form of U.S. and U.K. ground attacks on Houthi positions have failed to deter the Houthi strategy, while providing a rationale for extending the threats to shipping.

Several emerging trends are worth considering:

• Company-by-company diversions — Major firms with vessels plying the Red Sea are sending “avoid” or “continue” orders to ship captains that appear based largely around connections to Israel, the United States, and Europe.
• Competitive advantages for firms from countries opposed to the Gaza conflict — Shipping firms from China and other nonaligned countries appear to have fewer problems transiting the Red Sea, while firms based in Israel-supporting jurisdictions are more likely to avoid the Yemeni coast and incur higher costs. These advantages may even disincentivize China from intervening to defuse the crisis.
• Houthi “sanctions” on the European Union — The selective Houthi attacks are serving as a form of economic sanction that mainly affect the EU. As charter and cargo rates rise and delay arrivals, the added costs appear likely to play out in EU price inflation.
• Global South’s asymmetric demonstration of soft and hard power — Iran-linked Houthi are using inexpensive forms of hard power to rattle Washington and its NATO allies, while capturing the admiration of those in the developing world who are appalled by Israeli conduct in Gaza.[2]
• Houthi aims are changing — Recent attacks on U.S. and U.K. ships are said to be based not just on demands for a Gaza cease-fire, but around retaliating for U.S. and British airstrikes on Houthi sites inside Yemen. A further broadening of Houthi aims is said to include new goals of sanctions relief for Iran and recognition of the Houthi as Yemen’s legitimate government.[3] These changes suggest the shipping attacks could continue beyond a cease-fire in Gaza.
• Asymmetry in energy commodity trade — Red Sea shipments of Saudi crude oil to Europe are at six-month highs — since those cargoes do not pass the Yemeni coast — while Russian crude cargoes flow through the Red Sea to Asia unabated. Meanwhile, Qatari liquefied natural gas (LNG) shipments to Europe have detoured en masse or been replaced by alternate cargoes sourced in the Atlantic basin.

This issue brief examines how a non-state actor has been able to undermine global norms around freedom of navigation. The brief reviews shipping disruptions and cost implications, details Houthi messaging and targeting choices, and describes how their selective actions should be considered a form of economic sanctions.

Shipping Disruptions and Cost Implications

The Suez Canal is a well-known strategic chokepoint. In normal times, the canal carries 12% of global sea trade, including 30% of container shipping. About 15% of globally traded crude and refined products normally pass through the Red Sea, roughly 8.5 million barrels per day (Mb/d) — 5.5 Mb/d of crude oil and 3 Mb/d of refined products (from a Wood Mackenzie slide presentation, February 2024, “Red Sea Crisis: Not for US refiners as Margins Boom!”). As the attacks approach their fourth month, transits through the Red Sea are down by 65% from the 2023 average, according to figures from Clarksons, a maritime consultancy.[4] International Monetary Fund data show transits dropping from 74 ships per day on average in 2023 to 45 per day in recent weeks, while Bloomberg data show transits around the Cape of Good Hope are up by 54% in same period.

But these figures hide multiple disparities:

• Shipping by firms such as China-based COSCO and OOCL, South Korea’s “K” Line and Taiwan-based Evergreen showed little change.
• Most or all voyages by Denmark’s Maersk, Israel’s ZIM, Japan’s Mitsui OSK, Swedish-Norwegian Wallenius Wilhemsen, and France’s CMA CGM have routed around the Cape of Good Hope.[5]
• Chinese COSCO container ships were reported passing unobstructed as recently as late February, while additional Chinese carriers were shifting into the Red Sea trade to capitalize on advantaged access and higher rates.[6]

Further disparities affect trade in energy commodities flowing from the Middle East north through the Red Sea. All Qatari LNG shipments to Europe have been diverted around Africa, with Kpler reporting zero LNG transits of the Red Sea since Jan. 17.[7] Qatari diversions may be related to destinations in the EU, but also due to greater potential for danger, damage expense, and environmental harm from any attack on an LNG carrier.

Europe-bound crude oil and refined fuel shipments from most of the Middle East and India have all but collapsed.[8] One major exception is Saudi Arabia, which has the operational flexibility of an oil export terminal at Yanbu on the Red Sea — well north of Yemeni territory — which allows Saudi Aramco to send crude oil cargoes through the Suez Canal to Europe and beyond. Data from Kpler show that Saudi oil shipments through Suez are at their highest point since July 2023.[9]

In the north-to-south direction, disparities continue. Russian oil and commodity shipments heading southbound through the Red Sea are nearly unchanged, while Algerian naphtha and European gasoline shipments to Asia are detouring via the Cape (Wood Mackenzie, “Red Sea Crisis”).

In addition, outside energy commodities, grain shipments and other dry bulk shipments from Europe, U.S., and Australia through the Red Sea to Asia have increasingly scaled back after a pair of Houthi attacks on dry bulk carriers in January led to additional diversions around the Cape of Good Hope. Diversions of such ships jumped from around 10% to 20% after the mid-January attack, with French and Ukrainian cargoes bound for Asia among the most frequent diverters.[10]

Houthi ‘Economic Sanctions’

The Houthi strategy has therefore had the effect of imposing economic sanctions against countries supporting Israel. Firms in countries friendly to the United States and Israel are rerouting to a greater extent than those with a neutral stance, or where leaders have spoken in support of a cease-fire and Palestinian statehood. Examinations of registry information and destinations using the MarineTraffic app reveal a strong bifurcation in traffic, as non-Western ships and cargoes continue to use the Red Sea transit, while those with ownership or destinations in Europe or North America detour around southern Africa.

Houthi ship targeting bears few similarities to the so-called “tanker war” of the 1980s, where no such targeting distinctions were made by Iranian and Iraqi militaries, and far more ships were damaged. In fact, the current campaign is triggering responses from ship crews via the on-board automatic identification system (AIS) transceivers. AIS broadcasts from ships nearing Yemen now routinely contain details intended to dissuade Houthi attacks, such as “all crew Muslims,” “Chinese ship and crew,” “armed guard all Chinese,” or “no contact Israel” and similar messages suggesting the goodwill or neutrality of the crew and owners of the ship or cargo. Houthi statements have said that these ships will be allowed to pass based on such assurances but will be blacklisted and potentially seized if the AIS messages prove deceptive.[11]

The Houthi strategy is increasing the cost of trade between Asia and Europe in general, while creating cost disparities between Asian and European shippers. Diversions have raised costs for European firms and cargoes, while Asian shippers are more able to preserve shorter routes while capitalizing on increased shipping fees. For instance:

• Fuel tanker day rates from the Middle East to the Netherlands have jumped from $23,000 per day in December to $73,000 per day in late January 2024.[12]
• The cost to ship a 40-foot container from Shanghai to Genoa has risen from about $1,400 in November 2023 to $6,300 in late January 2024, assuming a 4,000-mile diversion around the Cape.[13]
• Some shippers are adding diversion surcharges as high as $2,000 per 20-foot container equivalent (TEU).[14]
• Rerouting a single container ship adds $1 million in extra fuel and at least 10 days to the journey, according to Maersk.[15]
• Insurance costs are also rising since risk premiums and war risk clauses are being activated in many contracts.
• Shipping delays on components have caused Tesla and Volvo to suspend car assembly at European plants.[16] These supply chain costs are being passed along to consumers, driving another round of inflationary effects.

JP Morgan’s research division issued a global forecast in February saying that the Red Sea “disruptions could add 0.7 percentage points to global core goods inflation, and 0.3 percentage points to overall core inflation, during the first half of 2024.”[17] How the situation will play out remains an open question.

Figure 1 — Arabian Peninsula Maritime Chokepoints

Note: Houthi attacks have focused on ships approaching the Bab el-Mandeb Strait from either direction, via the Red Sea or Gulf of Aden.

Houthi Targeting Choices

Houthi attacks on commercial shipping began after Oct. 19, 2023, when the USS Carney shot down Houthi drones and missiles launched toward Israel. Initial shipping attacks were based on alleged links to Israel, while later targets have expanded to ships or cargoes with links to countries friendly to Israel. After U.S. and U.K. forces responded with airstrikes on Yemen, Houthi announcements about some of the shipping attacks began to be described as retaliatory. It remains unclear whether all Houthi attacks are now linked solely to the Gaza conflict. Most of the attacks have failed or been repelled by U.S. or British navy forces or caused minor damage. None have caused fatalities as of the time of writing.

A few attacks have caused significant damage:

• The British-linked tanker MT Pollux was hit by an anti-ship missile in the Gulf of Aden on Feb. 17.[18]
• The U.K.-owned Rubimar, a bulk carrier, was hit by two Houthi missiles and abandoned by its crew Feb. 18. The Rubimar was reported to be leaking fuel or its cargo of fertilizer. An 18-mile slick had formed as the listing ship was towed to Djibouti.[19]
• The tanker Marlin Luanda, carrying a Trafigura-owned cargo of Russian naphtha, was set ablaze by a Houthi anti-ship missile on Jan. 26.[20]

The most dramatic assault was the Nov. 19, 2023, Houthi seizure of the Galaxy Leader, registered in the Bahamas to Ray Car Carriers, a unit of Tel Aviv-incorporated Ray Shipping with headquarters in the Isle of Man and ownership ties to Israeli businessman Rami Unger.[21] The car carrier and its 25-person crew were captured by Houthi commandos and taken to the Yemeni port of Hodeida, where the impounded ship has become a tourist spectacle.[22] The crew and ship are still in Yemen at the time of writing.

Although ship targeting appears selective, Houthi personnel have at times fired upon vessels without links to Israel, or where links are conflicted, such as the Martin Luanda, which carried a Swiss-owned cargo of Russian naphtha. Russian President Vladimir Putin has voiced support for a cease-fire in Gaza.

The Red Sea and Gulf of Aden attacks offer a rare example of a foe of Israel launching a wide-ranging global economic disruption that is selective in its targeting while proving difficult to deter. The Houthi attacks are driven by similar grievances to the 1973 Arab oil embargo — it also sought to punish wartime supporters of Israel with higher oil prices. Unlike the more selective Houthi campaign, the 1973 embargo’s devastating effects on oil-importing countries did not distinguish between countries friendly or hostile to the Arab cause. More discriminating Houthi targeting appears to be leveraging AIS messaging, registry details, and spotter boats to distinguish “friendly” ships from those it considers targetable.

The Messaging Is Changing

Houthi statements have described the selective targeting of shipping as a good opportunity to showcase their capabilities to the world while highlighting Gaza’s plight, a popular cause in the Muslim world and much of the Global South. The attacks have raised the Houthi profile and may also generate support for the group’s ultimate goal: gaining control of Yemeni territory and legitimizing their rule.

Early Houthi statements said the attacks were a response to Israel’s attacks on Gaza and would stop when Israel declared a cease-fire and allowed in sufficient humanitarian aid. But the group’s recent statements have pointed to Houthi grievances with U.S. and U.K. airstrikes.

A London-based shipping lawyer suggests that risk profiles are changing in the Yemeni offshore and that the Houthi are developing “fresh grievances” toward the United States and United Kingdom based on naval attacks on Houthi positions in Yemen.[23] There are also questions around whether attacks on U.S.- and U.K.-linked vessels may continue beyond a cease-fire in Gaza.

The Houthi have proven difficult to deter in past conflicts, demonstrating a willingness to withstand aerial bombardment without relinquishing their aims. They have an inexpensive yet effective arsenal, including missiles and armed aerial drones, as well as unmanned seaborne bomb boats and submersibles. Press reports suggest the group may be digging in for a protracted conflict.[24]

The group has allied itself with Iran and has accepted Iranian assistance. But descriptions of the Houthi as Iranian “proxies” are off the mark, since the group’s aims and actions are often distinct from those of Iran. Hostility to Israel and the U.S. have long been a central part of Houthi messaging since their emergence as a force in 2004 — well before they developed major links with Iran.

Admiration of the group extends well beyond Iran. The Houthi are receiving accolades as “the only Arabs helping Palestine,” according to social media postings and media reports.[25] Houthi resistance has generated appreciation in much of the Global South, where frustrations run high with U.S. and European backing for Israel. The Houthi have also contrasted themselves with Arab governments that have remained on the sidelines of the Gaza conflict, either due to normalized ties (or talks) with Israel or a preference to avoid antagonizing Washington.

Over the long term, however, the Houthi attacks are likely to undermine the group’s standing by exacerbating Yemeni isolation and worsening the country’s already dire living standards. In 2023 the United Nations Humanitarian Response Plan (UN HRP) for Yemen only received 38% of the funds deemed necessary, less than all other regional recipients except the Palestinian territories. Even that aid to Yemen looks likely to decline, given the re-designation of the Houthi as a terrorist group by the Biden administration, in response to the attacks. The U.S. used to be the largest funder of the UN HRP, providing 40% of its funds. As the U.S. designation took hold, the UN World Food Program pulled out of Houthi-controlled parts of Yemen in December 2023 and Western Union has stopped transferring remittances.[26]

Conclusion

Yemen’s Houthi have mounted a selective counter-shipping campaign that has disrupted global trade between Asia and Europe, while demonstrating solidarity with the Palestinian cause, a major concern of the Global South. The shipping attacks have thus far caused little physical damage but have triggered major delays and expenses for firms based in countries friendly to Israel, as well as for responding U.S. and European navies. The Houthi practice of distinguishing targets by national origin, with efforts to leave unmolested carriers from “friendly” countries, serves as a form of economic sanction on affected destinations such as the European Union. As such, the anti-trade campaign adds a new level of sophistication to producer embargoes and so-called “tanker wars” of the past. Meant as a challenge to Israeli war tactics, the Houthi strategy has ended up demonstrating the power of a non-state actor to undermine global norms around freedom of navigation and the traditional oversight role of great powers.