The Red Sea has become a major concern for global trade as tensions rise. Yemen’s Houthi militants have announced plans to intensify attacks on merchant ships, specifically targeting any vessels linked to Israel. This warning comes after the group claimed responsibility for sinking two cargo ships, the Magic Seas and Eternity C, which were Liberian-flagged and Greek-operated. The attacks have resulted in the deaths of at least four seafarers, with 11 others taken hostage, raising alarm in the maritime industry.
These recent threats and incidents have put significant pressure on global shipping routes, supply chains, and insurance markets. The Red Sea and the nearby Suez Canal are crucial for international trade, handling about 12% of the world’s commerce. Due to the increased risk, many shipping companies are once again rerouting their cargo around the Cape of Good Hope, a longer and more expensive journey.
Jord Oostrom, chief commercial officer for Aon in the Middle East, noted that the shipping industry has adapted to changes in supply chains, but the ongoing instability in the region could lead to higher energy costs and disrupt trade. He pointed out that since 2024, major shipping lines have been avoiding the Red Sea and Gulf of Aden due to the threat from Houthi attacks, opting for routes across the Horn of Africa instead.
The impact of these disruptions is being felt across various industries, especially those that rely on just-in-time delivery, such as electronics and food. Oostrom warned that the oil market could see continued volatility, which might lead to price spikes and affect both imports and exports.
The marine insurance market is also feeling the strain. Since late 2023, the Southern Red Sea and Gulf of Aden have been classified as high-risk zones. Following the recent attacks, insurers have raised premiums for marine war risks and adjusted their coverage models in response to the unpredictable nature of Houthi targeting. Key areas affected by these changes include marine war and hull insurance, cargo insurance, and kidnap and ransom coverage.
To mitigate risks, governments are investing in alternative transport infrastructures, such as land and air routes, to ensure trade continuity. However, if key shipping routes like the Strait of Hormuz or Suez Canal face disruptions, costs and delays are expected to rise, further straining trade relations.
For insurance brokers and risk managers, this situation presents an opportunity to help clients manage their risks more effectively. Aon suggests that companies should monitor geopolitical developments closely, adapt their insurance coverage, and enhance visibility across their supply chains. By doing so, businesses can maintain their delivery capabilities during crises, which can strengthen their credibility in the global market.