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12 21.12.2023 NEWS ATTACKS in the Red Sea linked to the Israel-Hamas war will cause shipping delays and drive up the price of goods, bringing a new inflation risk to the economy. Shipping companies are diverting cargoes after Iran-backed Houthi mil- itants attacked commercial vessels ply- ing the Red Sea. e vessels will have to sail around Africa instead of taking the shorter route through the Suez Canal. is rerouting will mean higher ship- ping costs and longer delivery time, Bloomberg Economics analysts includ- ing Gerard DiPippo wrote in a note. e Red Sea is one of the world's most important shipping lanes, car- rying about 14% of global maritime trade. Among the economies most af- fected by the trade disruptions would be Greece, Jordan, Sri Lanka and Bul- garia, the analysts said. More than 20% of containers passing through the Suez Canal carry goods from Asia to European and Mediter- ranean nations, according to logistics intelligence firm project44. Diverted ships would have to sail around Afri- ca to reach Europe, adding a minimum of seven to 10 days to the journey, they estimated. Still, there are reasons to believe the disruptions will have only a moderate economic impact, Bloomberg Eco- nomics said. While the cost to send a 40-foot con- tainer from Shanghai to Rotterdam has jumped 44% from the end of October before the attacks began, and by more than 26% to Genoa, they remain well below levels in 2021 and 2022 dur- ing the pandemic, data compiled by Bloomberg show. e effect on inflation in Europe will be limited as markets and shipping companies adjust to the new situation, according to Bloomberg Economics. China exports Chinese exports have also been weak all year and could slow next month, as factories typically wind down early in the year due to the end of Christmas demand and before the Lunar New Year break in Asia. However if the dis- ruptions continue or worsen, it could put more downward pressure on that trade. Exports from China to Europe fell in each month since June, while export growth from Japan to Western Europe slowed to 1.1% in November from a year earlier. e US has announced a new task force intended to protect commercial vessels traveling through the Red Sea. Countries participating include the UK, Bahrain, Canada, France and Ita- ly. Both Japan and China have military bases in Djibouti, near the Red Sea, but have not said they would take part in the naval effort. "e best the world can hope for may be a moderate risk scenario, in which shipping is diverted for at least several months until the security situation in the Red Sea stabilises," the Bloomberg Economics analysts wrote. is may not be the optimal scenario but it's happening when there's more shipping capacity and it's better than some of the alternatives, they added. Red Sea chaos risks driving up the price of goods for the global economy OIL prices have spiked and could re- main elevated as companies try and find alternative cargo routes follow- ing vessel attacks in the Red Sea. International benchmark Brent crude has shot up to $79.35/bbl as of Wednesday morning, having opened on Monday at $77.24/bbl. The attacks are believed to have been perpetrated by Houthi rebels in Yemen. Major shippers such as Maersk and Evergreen and Norwegian gas giant Equinor have implemented re-rout- ing plans, while oil firm BP became the first among peers to pause all shipments through the Red Sea, cit- ing a "deteriorating security situa- tion." "For those vessels still transiting through the Red Sea, war risk [insur- ance] premiums are reported to have increased from 0.07 per cent of the value of a ship in early December to 0.5 per cent to 0.7 per cent this week," said Toby Vallance, executive com- mittee member of the London Forum of Insurance Lawyers. "Both options of increased premi- ums and rerouting around Africa will see a knock-on effect on the price of goods (especially oil), due to a stifled global supply chain, which may be further perpetuated given the time of year." BP's decision comes at a crucial time for petrol demand as UK motor- ists prepare for Christmas journeys. Petrol prices have dropped over the past few months, falling to 142.6p per litre this week, the lowest since the end of October 2021 and 10p lower than December last year. However, higher oil prices could translate into higher prices at the pump in the next week as the disrup- tion filters through to consumers. An official security operation named Prosperity Guardian has also been launched by a coalition of countries including the UK, Canada, France, Bahrain, Norway and Spain. To avoid the areas of recent attacks, firms are likely faced with a longer voyage of up to two weeks for ship- ments of petroleum products from the Middle East and India to Europe and from Russia to China and India. Red Sea attacks could spark spike in gasoline prices The Galaxy Leader cargo ship on November 22, 2023. A number of commercial cargo ships have been attacked with drones and missiles, or boarded, since early November

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