SUBSCRIBER+EXCLUSIVE INTERVIEW – For months, Yemen’s Houthis have been launching repeated missile and drone attacks againstcommercial and military ships in the southern Red Sea and Gulf of Aden. To date, U.S. and international efforts to bring an end to the attacks have proven unsuccessful.
Last Saturday, CENTCOM reported that the group launched five ballistic missiles at the Chinese-owned oil tanker Huang Pu, despite Houthi promises not to attack Chinese and Russian ships. The barrage of missiles and drone attacks have caused massive disruption to the global shipping industry. So, is there a way to stop the Houthis?
CONTEXT
- Cargo vessels have been forced to avoid the Red Sea and sail around southern Africa. The number of vessels in the southern Red Sea is down around 70% compared to the start of December. Container shipping is down about 90% and gas tankers have mostly stopped transit.
- The U.S. is leading the multinational military coalition Operation Prosperity Guardian to protect shipping in the Red Sea. The E.U. also has its own Red Sea mission, Operation Aspides.
- The U.S. and U.K. have launched strikes on Houthi targets in Yemen, including joint strikes and unilateral U.S. strikes. The attacks have targeted Houthi missiles and drones. The Houthis warned Saudi Arabia of retaliation if the kingdom helps the U.S. launch air strikes against Houthi targets in Yemen.
The Cipher Brief tapped former National Intelligence Manager for Iran (NIM-I) at the Office of the Director of National Intelligence (ODNI) and Energy expert Norm Roule for his take on how what’s happening in the Red Sea- and how these attacks and the war in Gaza are impacting everything from global shipping to the global order.
The Cipher Brief: Let’s start with the big lessons. What has this conflict told us about the direction of the global order?
Roule: The world has seen dozens of conflicts since the Second World. Russia’s war against Ukraine and the Iraq War involved larger armies and some of the African conflicts since 2003 involved multiple regional and international actors. However, in terms of a regional conflict that pulled in a myriad of players; sparked ground, naval, and air operations over a vast regional geography; shifted diplomatic relationships; ignited political turmoil in our country; and damaged global economies; the Gaza War seems unique. The conflict continues to test the global order and the potential for international cooperation almost weekly. The results have been frequently illuminating and generally disappointing but rarely surprising. The roots of this war lay in policy approaches that avoided tough decisions out of concern for electoral and worst-case security consequences. Several complex realities are apparent.
First, a failure to resolve the Palestinian issue has once more imposed a terrible cost in lives and treasure, inflicting a fresh historic trauma on a generation of Palestinians and Israelis. There is plenty of blame to go around. It is wrong to hope for progress until the Israeli and Palestinian people choose leaders capable of overcoming decades of anger and distrust. I am not sanguine this will happen, but we will have a clearer picture of the possibility in the coming months.
Second, Iran’s support for proxies has become the primary driver of violence in the region. There is no evidence that Tehran’s leadership is interested in a normative relationship with its neighbors or the West. We do have evidence, however, that it has used diplomatic engagement and sanctions relief to empower its proxies with devastating and lethal consequences for millions of people in Gaza, Israel, Yemen, Syria, Iraq, and Lebanon. This isn’t to say diplomacy is wrong, but endless diplomacy lacking any coercive component and a fixation on worst-case scenarios should pressure be employed, have brought terrible consequences.
In our attempts to deter aggression have we instead allowed such adversaries to deter us? The Red Sea crisis illustrates this case. Hitherto, Iran’s reach was limited to terrorism and control by militias in failed states. No more. Mainly because the international community has chosen not to punish either Iran or its proxies, Iran is now able to use proxies to inflict unprecedented damage to global economies. Absent a change in Western strategy that increases costs to Iranian and Houthi leadership, an end to the Gaza war will find Tehran and the Houthis able to repeat these attacks, possibly against a more extensive geography and with weapons and tactics meant to respond to current Western countermeasures.
Third, the Gaza war shows what happens when policymakers allow social media and activists to drive the political conversation. Iran and its proxies find their most potent victories in these moments.
Last, recent months have served to remind us that the global order remains shaped by the United States even if Washington’s strategy seems uncertain. International institutions have proven sterile arenas with no meaningful impact on regional events. European actions in the Gaza War and related arenas have been positive but generally conducted in Washington’s shadow. Despite several years of claims that Russia and China would displace the U.S. in the Middle East, neither has played a meaningful role since the war’s outbreak. The U.S. has invested tremendous political, diplomatic, financial, and military capital in the Middle East since October 7, albeit without a clear sense of what defines success beyond defense and temporary degradation of adversary capability.
This approach, especially regarding the Houthi assault on a critical maritime supply artery, undermines confidence in Washington’s reliability on an issue touching the equities of friends and foes around the world. We should be concerned that the current approach will accelerate multipolar pressures, leading to a world where loose, transactional, and inherently uncertain partnerships replace once-reliable coalitions. In the short term, we should monitor the economic impact of the Red Sea disruption on emerging and developing countries.
The Cipher Brief: What has the conflict told us about the Middle East or how the world should engage the region?
Roule: At the risk of sounding flippant, the Middle East has reminded us that it remains in the middle. Despite our record oil and gas production, the Middle East continues to exert an outsized impact on global energy markets. Geographically, the region includes three of the globe’s most important maritime choke points – the Suez Canal, Bab al Mandab, and Strait of Hormuz. Adding the Strait of Gibraltar and Bosphorus to that list isn't unreasonable. A vast portion of the globe’s trade and communications transits the territory of prospering, fragile, and failed states. It is inevitable that regional turbulence – or prosperity – will echo through the global economy.
But the region’s impact goes beyond economics. Regional leaders seek a larger voice in global affairs. The recent COP-28 showed how the UAE pulled together public and private sector leaders from the global North and South to address the climate change challenge. Saudi Arabia aims to have a similar influence with its climate initiatives. The political and economic revolutions in the United Arab Emirates and Saudi Arabia offer opportunities for Asia, Africa, Europe, and Latin America, let alone the United States. The importance of Jerusalem, Najaf, and Mecca to Moslems gives the region a strong voice in global Islamic communities. One can understand why policymakers see China as the great challenge of our time. Still, it is difficult to judge any strategy as wise if it reduces attention to an area that carries so much risk and opportunity.
The Cipher Brief: How do you see the impact of the Houthi attacks on regional shipping and what this means for regional and global economies?
Roule: Up front, it is clear that the global shipping industry – responsible for around 80 percent of global trade – has entered an era of unpredictability and crises unseen since the end of the Second World War. The Houthi attacks represent only the latest challenge. Climate change has constrained operations in the Panama Canal, and deglobalization and shifts in energy markets will introduce new trade patterns.
Chinese naval forces have also recently operated more aggressively in the Pacific around Taiwan, the Philippines, and Japan. The Black Sea appears to have stabilized, but it is unclear if Moscow will seek to disrupt Ukrainian food and agricultural deliveries. Dealing with the collective impact of these challenges requires the attention of political, security, and economic policymakers.
In terms of Yemen, Houthi attacks on shipping have produced a maritime diversion unprecedented since 1945. Hundreds of ships and tankers destined for the Western Hemisphere, Europe, and Asia have been forced from the Red Sea to travel via the Cape of Good Hope. Transit times have increased by ten to almost twenty days. This shift increased fuel, insurance, and crew time costs and reduced the number of free ships and cargo containers available on the market. Mediterranean consumers pay three or four times the pre-conflict rate to ship a container of goods from China. Shipping costs have also doubled when delivering containers from Asia to the U.S. West Coast due to reduced ship availability.
The Red Sea disruptions are likely to continue for the foreseeable future. The pace of Houthi attacks may decline, but current operations will not deter attacks, and the Houthis could choose to introduce new threats, e.g., naval mines. Major shipping firms will not risk crews, ships, and cargo until they have firm evidence that the Houthi attacks are over.
Shippers must accept higher prices as the new normal for near-term delivery contracts. Some Asian suppliers drop shipments in Oman, the Emirates, or Djibouti for onward land shipment to the Mediterranean. U.S. shippers must consider whether to deliver to the West Coast, how West Coast ports will manage this surge and the costs of moving containers by rail or truck to U.S. and Canadian East Coast consumers. Companies must build inventories or delay their deliveries to weather increased shipping time. We may end up seeing companies move to onshore or nearshore suppliers.
The Cipher Brief: What do you think is the new normal regarding the Houthis and their attacks?
Roule: The disruption of the Red Sea will continue for weeks, perhaps months, and the lethal threat to seafarers will continue. The pace and frequency of Houthi missile attacks may diminish as the U.S. and its partners erode Houthi stockpiles, but Houthi intent remains. Tehran will certainly try to replenish Houthi missile stocks at the first opportunity. Energy shipping is unlikely to be further impacted unless the Houthis expand the geography of attacks into the Arabian Sea and Indian Ocean. They have claimed they will do so, but such a campaign would almost certainly require significantly more targeting assistance from Iran.
The Houthis have claimed their attacks are only aimed at Israel, U.S, or UK interests. Whether this was indeed their intent, attacks have touched many countries, companies, and nationalities. The Houthis reportedly receive targeting data from an Iranian spy ship, but they and Iran probably use commercial databases that aren’t always up to date. It isn’t unrealistic to believe that some of these attacks are meant to demonstrate power projection to the West.
We should also recognize new weapons and threats that appeared in this conflict. Attention has focused on missile and drone attacks, but cyber weapons are now on the table. Press reporting in February described a US cyber-attack against the Iranian spy ship Behshad, which is widely believed to be providing the Houthis with targeting support. If true, this is the first reported case of a cyber-attack on shipping in a war zone. Have we entered a new age when shipping and ports are routine targets of state and non-state cyber actors in declared and undeclared conflicts? Are shipping companies doing enough to protect their operations? The recent news that the U.S. believes China has developed a capacity to attack our port activity through shipping cranes only adds to the complexity of the threat to maritime infrastructure.
The Red Sea conflict has also underscored the vulnerability of undersea communications cables. Just under a dozen cables under the Red Sea carry a tremendous amount of communications and data between Europe and Asia. There have been reports that perhaps as many as four cables running from Saudi Arabia to Djibouti were damaged, impacting around a quarter of the data flowing between Asia and Europe. The likeliest cause for the damage was not direct Houthi action but rather when the Houthi-damaged vessel M/V Rubymar dragged its anchor across the cables before the ship finally sank. We shouldn’t be surprised that Iran and the Houthis may explore how to develop this as a threat capability.
The Cipher Brief: How do you assess the Western response to Houthi attacks to date?
Roule: Our ultimate policy goals remain unclear beyond the defense and degradation of Houthi capability. At the same time, Western military personnel and equipment have performed superbly.
The scale of military operations in the Red Sea and Gulf of Aden is striking. U.S., British, French, German, and Italian warships have downed dozens of missiles and drones, dealing with individual as well as swarm attacks. U.S. and British forces have struck over 230 targets in Yemen, destroying missiles; air, water-borne, and submersible drones; at least one SAM site; munitions depots; and weapons production facilities. There is no question that these operations have prevented many Houthi attacks, likely saving lives and shipping.
Expenses related to the U.S. naval deployments and weapons expenditures have been extraordinary and almost certainly outside budget predictions. The Navy has reportedly used more than a hundred surface-to-air missiles at a cost of between two hundred million and four hundred million dollars per firing. The final cost of the operations in the Red Sea and the eastern Mediterranean will likely be measured in the billions, underscoring the importance of partners and burden sharing.
At the same time, policymakers have avoided striking facilities or personnel associated with Houthi or Iranian decision-makers, likely out of concern that doing so could expand the regional conflict. The administration reportedly continues to judge that Houthi attacks will end with a Gaza ceasefire. Unsurprisingly, this strategy has not deterred the Houthis from further attacks, and the Red Sea remains unsafe for most maritime shipping. Further, this approach signals that the U.S. and its partners will refrain from acting against those who direct or undertake lethal attacks against civilian targets.
Houthi leadership likely believes that when the Gaza war ends, Western interest in the region will fade. Tehran will then replenish weaponry and provide training that considers lessons learned in the conflict. It then becomes a decision by Tehran or the Houthis as to when they next seek to disrupt the global economy. Although unintended, the current approach may lay the foundation for future disruption of maritime shipping with strategic consequences.
The Cipher Brief: What does the Red Sea crisis experience tell us about U.S. partnerships? Why aren’t Gulf states engaged in the conflict?
Roule: Although there appears to be good cooperation or at least no friction among the various countries operating military vessels in the area, the campaign also shows the limits of international cooperation with separate if overlapping U.S. and EU-led coalitions; China, India, and other countries operate outside of both. It is hard to look at this architecture as anything other than evidence of further erosion of collective defense of international sea lanes. The good news is that NAVCENT leadership manages this complicated situation with considerable diplomatic and operational skills. When this conflict ends, the lessons learned and applied by these exceptional leaders should be reviewed by rising military leaders, diplomats, and historians.
The Cipher Brief: Why aren’t Gulf states engaged against the Houthis? What are the drivers behind Gulf Arab thinking on a conflict so close to home?
Roule: The position of Gulf countries is complicated, and there are probably several drivers behind their decision-making.
First, the Houthis anti-Israel narrative has been effective in gaining them local and probably even some regional respect. Gulf countries don’t want to be perceived as helping Israel.
Next, many Gulf officials and Western observers believe the Houthi conflict was an inevitable result of Western pressure against the Saudi and UAE-led Arab coalition to halt military operations aimed at restoring the internationally recognized government of Yemen. Since that time, the humanitarian situation in Yemen has been no less fragile, and the Houthis have slow-walked diplomatic talks despite the hard work of seasoned U.S. and Saudi diplomats. Regional countries are now focused on development and must consider the reliability of Western support should their efforts to open the Red Sea ignite a missile war with the Houthis.
Economically, the Bab al-Mandab is not as critical to Gulf economies as it is to Europe. The region’s oil customers are mainly in Asia. Riyadh can also export oil north of Houthi operations using its East-West pipeline. Delivery distortions primarily impact liquefied natural gas (LNG) shipments. Qatar has multiple European gas customers and has elected to send its ships around Africa. Fortunately for Europe, a mild winter allowed it to build large stockpiles of natural gas, generally blunting the impact of LNG delays.
The Cipher Brief: Let’s talk about the economic impact of the Red Sea crisis. How is this playing out?
Roule: In broad terms, the impact on the global economy will be relatively modest compared to COVID, partly because businesses expanded inventories following the pandemic, and advanced economies are starting to experience a slowdown in consumer purchases. Increased shipping expenses will impose modest upward inflationary pressures in the West while raising the specter of recession and reduced growth in developing economies. Introducing these conditions in Europe would likely take a more sustained and severe interruption of maritime deliveries. European central banks will consider the shipping variable while reviewing interest rate positions. The most significant impact will be on developing economies in Asia, East Africa, and the West Coast of South America.
Regarding specific industries, the impact of Houthi actions is global, touching a surprising number of industries and sectors. Let me run through a few:
· Shippers and their clients from many countries have been hit hard. Even ships able to make the seven-day Red Sea transit endure new expenses. War insurance premiums have increased by hundreds of thousands of dollars. Crews receive double pay while in the war zone. Rerouting ships imposes as much as a USD one million in additional costs per large container ship. Maersk, Hapag Lloyd, and CMA CGM responded by increasing shipping fees in December.
· Multinational automakers and their parts suppliers were among the first to see the Red Sea crisis impact costs and operations. Tesla and Volvo temporarily halted vehicle production in January because of parts shortages. Volkswagen and the Chinese automaker Geely Global each experienced delays. Some automakers rely on air shipments for critical parts.
· The United Kingdom saw shortages in consumer goods, including tea. Much like their automotive counterparts, large retail chains, such as Walmart, Tesco, and apparel retailers, are experiencing delays and higher costs and are looking to air deliveries for some goods.
In terms of specific countries, the impact varies. Let me give a few examples.
Israel: Israel’s Eilat port formerly handled Israel’s trade with Asia. Most of this trade has stopped, imposing losses that probably exceed several billion dollars on the country and businesses that supported port operations. China used Eilat to import electric vehicles to Israel and must deliver the cars via the Mediterranean to Ashdod port.
Egypt: The Gaza crisis comes on the heels of the Russian war against Ukraine, which had already raised the cost of wheat imports and brought about $20 billion in capital flight. If one is looking for evidence that Houthi actions are indiscriminate, Egypt is a good example. Suez Canal fees are essential to Egypt’s revenue, earning Cairo about $10 billion annually. At a time when its economy was struggling and the Gaza War had devasted its tourist industry and foreign investment, Egypt lost more than half of its canal transit fees. Suez Canal trade plummeted sixty-two percent in the first ten days of March alone.
Sudan: The Sudanese civil war has left twenty-five million people in need of humanitarian aid. With the loss of the Red Sea route, aid from Asian sources must circumvent Africa and the Mediterranean before reaching Sudan using the Suez Canal or trucks from Egypt. Shipments of food, medicine, and medical supplies that used to take one or two weeks for delivery sometimes require months. Smaller aid shipments can be offloaded in the UAE, trucked across Saudi Arabia, and shipped from Jeddah, but this route is far more expensive for charities.
Saudi Arabia: Saudi Arabia’s giga-projects consume a tremendous amount of construction materials, especially along Saudi’s western shore. Houthi actions have delayed these shipments. This crisis will likely encourage Gulf Cooperation Council infrastructure integration, including a commercial rail line that crosses the Arabian Peninsula.
India: The Red Sea Crisis has had a significant impact on India’s trade with the Middle East, Europe, and Africa, especially North Africa. New Delhi is dealing with increases in shipping costs by 40-60 percent, insurance rates by as much as 20 percent, and delivery delays due to longer shipment times and ship availability. New expenses for exports to and from Europe have hurt profits in Indian industries such as petroleum products, auto parts, and textiles.
China: Ironically, one of China’s most popular movies about five years ago was an action film called Operation Red Sea. The film centered on the rescue of hundreds of Chinese hostages from a country similar to Yemen, in which terrorists attempted to deploy a dirty bomb. In the movie, the Chinese military heroically stops the terrorists, saves the hostages, and chases American naval ships from Chinese waters. Beijing’s response to the Red Sea crisis displays none of this decisiveness. China has focused only on its interests and has been criticized for ignoring SOS calls from other ships.
The irony is that reliable transit in the Red Sea is arguably more important to China than to the U.S. More than half of Chinese exports to Europe travel through the Red Sea. China also has billions of dollars in regional investments that a wider conflict would threaten. Beijing also ships most of its exports to Europe through the Red Sea.
Aside from some diplomatic appearances, Beijing is a minor actor in diplomacy relating to the Gaza War and the defense of Red Sea shipping. Beijing has also been either unable or unwilling to pressure Iran to restrain Houthi aggression. This posture matches long-standing Western views that China will avoid expensive regional security entanglements, preferring to rely on the security provided by the US and Western militaries. China-related vessels transiting the Red Sea routinely use their automated identification systems to broadcast their association with China. But sloppy Houthi targeting is a danger. In December, the Houthis struck a container ship chartered by a Chinese firm. Since much of Chinese trade is shipped by vessels registered to other countries, Beijing has diverted around half of its trade around Africa to be safe.
The Cipher Brief: Why haven’t Houthi actions impacted energy prices?
Roule: Generally, energy markets have been largely unaffected by the Red Sea crisis. Some Russian and Chinese tankers continue to use the Red Sea. Asian markets remain supplied by Gulf producers. West African oil flow also continues generally along routes that don’t rely on the Red Sea. Tankers bound for US Gulf Coast refineries normally transit via the Cape because the Suez Canal cannot accommodate them when loaded. This said, the number of oil tankers transiting the Gulf of Aden and Red Sea has plummeted, bringing transit delays as they move around the Cape of Good Hope.
Europe has been somewhat insulated from the impact of LNG delays due to a mild winter and efforts to build gas stockpiles. However, LNG delays are felt in Spain, Italy, and Greece. Energy prices are most likely to spike if the Houthis attack tankers in the Indian Ocean.
The Cipher Brief: What are the environmental consequences of Houthi attacks?
Roule: The ecosystem of the southern Red Sea boasts pristine coral reefs, coastal mangroves, and diverse marine life. Egypt, Israel, and, most recently, Saudi Arabia see the area as important for their tourist industry. The Red Sea holds relatively warm water that environmentalists see as a living laboratory to determine how ecosystems respond to rising global temperatures. When the bulk carrier cargo M/V Rubymar sank in early March, it poured around 21,000 tons of ammonium phosphate sulfate fertilizer into the waters of the Red Sea. Environmentalists worry that such a spill will produce an enormous algae bloom that will destroy marine life, including coral reefs. The chemicals in fertilizers are also toxic to sea life, and that impact is also a concern. The impact on Yemeni fishing communities could be severe. No salvage operations and environmental studies will be possible if Houthi attacks continue. In terms of other environmental damage, carbon emissions from vessels spending longer at sea will also increase.
The Cipher Brief: Let’s move out of the Middle East but stick with shipping. You mentioned Panama. How does the Panama Canal fit into the global shipping challenge?
Roule: The Panama Canal presents a quite different problem but with a similar impact. The Canal doesn’t make the news often, but it plays a critical role in Western Hemisphere economies. Several Latin American countries rely on the Panama Canal for a substantial portion of their trade. Using the canal cuts shipping time by two weeks for US East Coast shippers with clients in Asia.
The Red Sea crisis is geopolitical, but the Panama Canal’s problems are climate driven. Usually, the canal sees about 1,000 ship transits a month or about thirty-six crossings a day. These ships move about five percent of maritime commerce every year. An unprecedented and prolonged drought has forced the canal’s operators to cut the number of transits by as much as fifty percent. Ships take longer to transit the canal, and canal tolls are between four and eight times higher than usual.
If the Red Sea crisis requires a political solution, only a break in the weather will help Panama. Here, we have some hope. The dry season is expected to end in May as climate patterns shift from El Nino to La Nina weather systems, which should bring more rainfall.
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