The Red Sea is facing renewed tensions that threaten global trade. Yemen’s Houthi militants have announced plans to intensify their attacks on merchant ships, specifically targeting vessels linked to Israel, regardless of their country of origin. This announcement comes after the group claimed responsibility for sinking two cargo ships, the Magic Seas and Eternity C, which were Liberian-flagged and Greek-operated. These attacks have already resulted in the deaths of at least four seafarers, with eleven more held hostage.
The recent escalation in hostilities has raised alarms within the maritime industry, putting global shipping routes, supply chains, and insurance markets under significant strain. The Red Sea and the nearby Suez Canal are crucial for world trade, accounting for about 12% of it. In light of the increased risk, many shipping companies are rerouting their vessels around the Cape of Good Hope, leading to longer transit times and higher costs.
Jord Oostrom, a commercial officer at Aon in the Middle East, explained that many shipping lines have avoided the Red Sea and Gulf of Aden since 2024 due to ongoing Houthi attacks. As a result, companies have started to reroute operations through the Horn of Africa and enhance security measures while traveling in the Southern Red Sea.
This shift in shipping routes is expected to have widespread implications, particularly for industries that rely on timely deliveries, such as electronics and food. Oostrom noted that the oil market may see continued volatility as Gulf Cooperation Council countries hold a significant portion of the world’s oil reserves. This could lead to reduced supply, increased prices, and further financial market instability.
The marine insurance sector is reacting swiftly to the situation. Since late 2023, the Southern Red Sea and Gulf of Aden have been classified as high-risk areas. Following the recent attacks, insurers have raised marine war risk premiums and adjusted their models to account for the unpredictable nature of Houthi operations. Coverages most affected include marine war and hull insurance, cargo insurance, and kidnap and ransom policies.
To manage these risks, Aon advises companies to focus on three key areas: monitoring geopolitical developments in real-time, adapting insurance structures to provide flexibility, and enhancing visibility across supply chains. Oostrom emphasized that effective management of geopolitical risks can provide a competitive edge, as companies that maintain delivery capabilities during crises can strengthen their reputation globally.
As tensions in the Red Sea continue to escalate, the impact on global trade and insurance markets is likely to grow, creating challenges for businesses reliant on stable shipping routes.