Business heads fear lasting bottlenecks from Red Sea tensions

By Maha El Dahan and Megan Davies

DAVOS, Switzerland (Reuters) -Business chiefs warned on Wednesday that disruption to shipping in the Red Sea caused by attacks by Yemen’s Houthi militants could affect supply chains for months and lead to a shortage of tankers needed to transport fuel.

Attacks by the Iran-allied Houthi militia on ships in the region since November have slowed trade between Asia and Europe and alarmed major powers — an escalation of Israel’s more than three-month-old war with Palestinian Hamas militants in Gaza.

The Houthis say they are acting in solidarity with Palestinians and have threatened to expand attacks to include U.S. ships in response to American and British strikes on their sites in Yemen.

Italy wants fellow European Union members to agree next week to create an EU maritime security mission so that it can become operational as soon as possible, Italian Foreign Minister Antonio Tajani said on Wednesday.

On the diplomatic front, India is engaged in negotiations with Iran on the attacks, an Indian government source said, adding India’s foreign minister was in Iran this week for talks with his counterpart.

Maersk and other large shipping lines have instructed hundreds of commercial vessels to stay clear of the Red Sea, sending them on a longer route around Africa or pausing until the safety of vessels can be assured.

“This is extremely disruptive because you have close to 20% of global trade that transits through the Bab al-Mandab Strait (to the Red Sea),” said Maersk CEO Vincent Clerc.

“It’s one of the most important arteries of global trade and global supply chains and it’s clogged up right now,” he told Reuters Global Markets Forum in Davos.

Freight rates have more than doubled since early December, according to maritime consultancy Drewry’s world container index, while insurance sources say war risk premiums for shipments through the Red Sea are also rising.

Banking executives have said they were worried the crisis might create inflationary pressures that could ultimately delay or reverse interest rate cuts.

The attacks are causing major disruption to Italian ports, operators say, and fuelling fears that a prolonged crisis may force companies to redraw routes and move traffic away from the Mediterranean more permanently.

U.S. STRIKES

The alternative shipping route around South Africa’s Cape of Good Hope can add 10-14 days to a journey when compared to a passage via the Red Sea to the Suez Canal.

Prolonged attacks by the Houthis on ships would lead to a shortage of tankers, the CEO of Saudi oil giant Aramco (TADAWUL:) said.

“If it’s in the short term, tankers might be available … But if it’s longer term, it might be a problem,” CEO Amin Nasser said in an interview on the sidelines of the World Economic Forum in the Swiss ski resort of Davos.

The U.S. military carried out new strikes in Yemen on Tuesday against anti-ship ballistic missiles in a Houthi-controlled part of the country as a missile hit a Greek-owned vessel in the Red Sea.

In a bid to cut off their funding and supply of weapons, U.S. President Joe Biden’s administration plans to put Houthi rebels back on a U.S. list of terrorist organizations, two U.S. officials told Reuters.

In a sign of the tensions, a Malta-flagged container ship was approached on Wednesday by three skiffs and a drone 10 miles southwest of Yemen’s Dhubab. No damage or casualties were reported, British maritime security firm Ambrey said in an advisory note.

In Greece, a makeshift explosive device went off on Wednesday morning outside the offices of shipping company Zim, Israel’s main container shipping line, police sources said adding that minor damage was caused by the blast.

The unknown attackers threw leaflets reading “Free Palestine” at the scene of the attack, the first such incident since the Gaza conflict started.