Red Sea attacks: What has happened and what does it mean for prices?

Here the PA news agency looks at what has happened and what the knock-on effects could be for people in the UK.

Anna Wise
Thursday 04 January 2024 12:08 EST
HMS Diamond joined international efforts last month to deter attacks on cargo ships in the Red Sea (LPhot Belinda Alker/MoD/Crown copyright/PA))
HMS Diamond joined international efforts last month to deter attacks on cargo ships in the Red Sea (LPhot Belinda Alker/MoD/Crown copyright/PA)) (PA Media)

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Global shipping firms have continued to pause shipments through the Red Sea after attacks on commercial vessels have caused weeks of disruption along the important trade route.

The boss of fashion chain Next said on Thursday that it could delay stock deliveries and impact sales.

Here the PA news agency looks at what has happened and what the knock-on effects could be for people in the UK.

– What is happening in the Red Sea?Since late November, Iran-backed Houthi rebels in Yemen have attacked container ships going through the Red Sea, one of the world’s busiest shipping routes.

If the threat from Houthi attacks passes quickly, then the implications for inflation are likely to be minimal

Ben May, Oxford Economics

The attacks began in response to the conflict in Gaza, with the group claiming it has been targeting cargo ships with links to Israel.

– Why is it important?The Suez canal is crucial for transporting energy, commodities, and consumer goods, with about 30% of all container shipping passing through the gateway between the East and the West.

Shipping firms having to reroute means sending vessels around Africa’s Cape of Good Hope, which is much longer and can add about two weeks to journey times.

Some major shipping companies such as Maersk and Evergreen, and oil giant BP, have been forced to pause shipments or reroute due to safety concerns.

– How could it impact me? Some retailers such as Next and Ikea have warned that persistent disruption could delay its deliveries and affect the availability of some products.

It could also mean retailers are forced to push up prices of their products as a result of increased shipping costs.

However, Ben May, director of global macro research at Oxford Economics, said that while the recent wave of attacks has “major ramifications” for the shipping industry, it is not yet clear what the impact on consumer prices will be.

He said: “The key question is how quickly shipping firms will be prepared to allow their fleets to return to sailing through the Red Sea.

“If the threat from Houthi attacks passes quickly, then the implications for inflation are likely to be minimal.

“After all, shipping costs are volatile and firms are likely to – at least initially – absorb fluctuations in shipping costs.

– Could it worsen inflation?

Susannah Streeter, head of money and markets for Hargreaves Lansdown, said the issue could cause a “fresh inflationary headache” for Bank of England policymakers, who decide UK interest rates.

Middle East tensions could be a big spanner in the works for any hope that the Bank of England might start tinkering early with interest rates,” she said.

Interest rates, which are used as a tool to control rising prices, currently stand at 5.25% and economists think they could be cut later on this year if the cost-of-living crisis continues to cool.

– What does it mean for energy costs?

Energy prices have risen this week, as concerns have grown over the escalation of conflict in the Middle East and what it could mean for oil supply.

Joshua Mahoney, chief market analyst for Scope Markets, said: “With the US-led coalition struggling to contain Red Sea attacks, there are concerns that we could see the flow of goods impacted for a prolonged period of time.”

– What is being done about the issue? 

The British Government and 11 other countries issued a final warning to militants to ease hostilities in the trade route on Wednesday.

The allied nations called for an “immediate end” to the attacks and said they are “determined to hold malign actors accountable for unlawful seizures and attacks”.

Mr May from Oxford Economics concluded: “The importance of the Red Sea shipping route increases the likelihood of a relatively quick resolution to the problem.”

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