What conflict and tensions in the Red Sea could mean for Europe

As Britain and the US attack Houthi positions, tensions are rising in the Red Sea, raising the possibility of a full-scale crisis. Global economic recovery may be at risk, In such a situation, Europe and its population can be expected to face high energy costs, Shipment delays and the return of inflation that translate into higher and permanent interest rates, All of these developments mean more problems for the average consumer and local businesses.

What is happening in the Red Sea?

Problems began when the Yemeni Houthi group As a result of ongoing tensions in the Middle East between Palestinians and Israel, commercial ships began to be attacked., So far, they have carried out 27 attacks on ships transiting vital international shipping lanes. The United Kingdom and the United States launched air strikes in retaliation., and US President Biden ordered the strikes “in direct response to the Houthis’ unprecedented attacks on international maritime vessels in the Red Sea”. According to official reports, coalition forces have attacked more than 16 cities and hit 60 targets.

Involvement of US, British and coalition forces What was a regional crisis has been transformed into a global crisis., The United States has blamed Iran for supporting the Houthis.

If the situation worsens, the global economy including the EU may suffer significant losses.

Europe could be affected by rising energy prices

Oil prices have already increased As a result of the tension, Brent reached the psychologically important mark of $80 (73.12 euros). The Red Sea represents 12% of global seaborne oil trade and 8% of liquefied natural gas (LNG).

The volume of crude oil passing through the Suez Canal has increased by 60% since 2020, According to official data, an increase in demand has been recorded in Europe since the pandemic. It is also important to note that Europe has been importing oil from Middle Eastern producers through the Suez Canal after the EU imposed sanctions on Russia over the conflict in Ukraine. According to freight data analyst Vortexa, Detours resulting from the disruption in the Red Sea could mean an increase in travel time for oil tankers on the world’s main routes by between 58% and 129%.Which includes people from India to Europe and from the Middle East to Europe.

The timing couldn’t be worse, especially as winter begins to take its toll on Europe, with potential energy supply disruptions that could directly affect homes.

supply chain disruption

More than 15% of global maritime traffic passes through the Red Sea, making it one of the most important strategic waterways in the world. According to the latest data, 123.5 million metric tons of goods moved through the Red Sea in 2022 and more than 22,000 ships passed through it. Overall, 12% of global trade volume uses this trade route.

However, due to disturbances, LGlobal container shipping companies are using the longest routes, avoiding the Red Sea and rounding the Cape of Good Hope. it is causing shipping rates to rise, as costs per container have risen to between 5,000 and 8,000 dollars (7,312 euros), two to five times the normal rate for this time of year. Additionally, the detour adds approximately 10 days or 3,500 nautical miles to the normal distance, which Insurance premiums have increased, According to Zeneta, freight rates between the Far East and Northern Europe have increased by 124%.

As a result, all goods and merchandise traveling in containers will not only arrive at their destination late, but prices will now reflect these increased costs. This will result in higher prices on the shelves, which in turn will lead to an overall increase in inflation.

Inflation and high interest rates

According to Allianz Trade, Inflation in Europe could rise by 0.7% as a result of disruptions, which could further delay the region’s recovery from a severe economic recession. This too Could force the European Central Bank (ECB) to keep interest rates higher for longer So that the pace of its efforts so far to deal with inflation does not slow down. ECB has increased rates 10 times in a row.

Higher interest rates could put downward pressure on businesses and also discourage further economic activity, something that has already been dampened throughout 2023, as indicated by the Eurozone PMI, which stood at 43.8 , indicating that production has fallen for eight consecutive months.

The European inflation outlook has recently improved, but there is still a long way to go. In Germany, consumer price inflation (CPI) rose 3.8% in December, up from 2.3% in November. France also recorded an increase in CPI, which stood at 4.1% in December, compared to 3.9% in November.

Rising energy prices and supply chain disruptions are likely to add to European countries’ existing economic concerns. This means that tensions in the Red Sea could have serious consequences for Europe in particular and the world in general.