Houthis causing negligible damage to Israeli trade - study

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Bank of Israel research found that the blockade of the Bab al Mandab strait has done minimal damage to international trade and has hardly affected Israel.

Despite many concerns about cargo bottlenecks as hasppened in the wake of the Covid pandemic, the blockade of the Bab al-Mandab Strait by the Houthis in western Yemen has not caused any great damage, according to a new Bank of Israel study by Haggayi Etkes and Nitzan Feldman of the School of Political Science at the University of Haifa.

Shipping prices have risen, but these increases have moderated dramatically in the past six months due to the impressive flexibility of the global system and effective resource diversion by shipping companies. In addition, the impact on Israel is marginal to non-existent - due to Israel's intensive trade with Europe, which is not affected by the blockade of the straits, and early preventive actions, which has softened the blow over time.

Following the Outbreak of the war in October 2023, the Houthi rebels, supported by Iran, joined the attacks on Israel. As well as firing ballistic missiles at Israel, they also blocked most of the shipping passing through the Bab al Mandab strait. The strait provides the only passage to the Suez Canal linking the Indian Ocean with the Mediterranean and saving the long journey around Africa. Due to the recent experience of the severe international trade bottleneck following the Covid pandemic, which increased transportation prices tenfold, there were concerns about a new trade backlog that would increase the cost of living and hinder economic growth, as actually happened after the closure of the Suez Canal in the 1960s and 1970s.

Trade was diverted to alternative routes

However, despite an almost six-fold jump in shipping prices on the Shanghai-Genoa route, which normally passes through the Bab el-Mandab Strait, prices have fallen significantly in the past six months to "only" double prices on the eve of the war. Because shipping costs are only a small part of the price of goods, this means that the impact on the cost of living is relatively negligible. Trade has been diverted to alternative routes, mainly circumnavigating Africa's Cape of Good Hope, and although the route takes longer and consumes more fuel, it has been a sufficient alternative to minimize the effects. Although diverting resources from other shipping routes (for example, in the Pacific Ocean) increased prices on these routes, they also helped mitigate the damage from blocking the straits.

In contrast to the situation in the 1960s and 1970s, the study's authors write, "The processes of globalization and the continuous improvements in maritime transport in recent decades - including the reduction of regulation of the maritime transport market, the expansion of the use of containers and the digitization of transport information - make it easier for shipping companies to respond more flexibly to changes in transport markets." In other words, market mechanisms seem to be proving themselves, dramatically moderating the influence that the Houthis tried to create in order to pressure the world to stop Israel’s war in Gaza.

Israel, which is in fact the Houthis’ main target, has hardly been affected. The study presents it as "a notable exception: the value of Israeli imports from Asia-Oceania, which is usually transported via the Red Sea, fell even before the Houthi attacks at a rate similar to the decline in the value of imports from the rest of the world. Import prices to Israel have also remained stable and appear to have been unaffected by the rerouting of shipping.

The reasons for this, according to the study, are that Israel's trade routes with Asia are small compared to most Western countries to begin with, and the volume of imports in general has decreased due to the effects of the war. In addition, "Israeli shipping company ZIM, whose home port is in the city of Haifa, was quick to reroute its vessels to alternative shipping routes around Africa, as early as November 2023, before other shipping companies did so, in December 2023, which caused the decline in imports to Israel to be more gradual compared to the decline recorded in other countries."

Published by Globes, Israel business news - en.globes.co.il - on December 11, 2024

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