According to the International Monetary Fund (IMF) maritime container traffic through the Red Sea has fallen by almost 30% year-on-year, as a result of Houthi attacks on merchant ships off Yemen.
As informed, since the beginning of the conflict, a severe humanitarian crisis has unfolded in Gaza, where more than 24,000 people have lost their lives within the first 100 days of the conflict—of which more than two-thirds were women and children, and almost 1.9 million people (nearly 85 percent of the population) have been internally displaced. Food and water insecurity is widespread, and essential infrastructure has been destroyed. Poverty rates have likely increased—from levels that were estimated at above 50 percent even before the current conflict (IMF 2023).
Moreover, international assistance to support the humanitarian response to the conflict remains limited. In the West Bank, restrictions on the movement of people, goods, capital, and access to resources (especially land) have been tightened, with a severe deterioration of both security and economic conditions.
Despite some initial pickup in volatility amid the onset of the conflict, energy and financial markets have remained broadly stable.
- Increased volatility associated with the conflict prompted a short-lived increase in oil prices. Nonetheless, prices quickly returned to below pre-conflict levels. Moreover, the late 2023 announcement of renewed voluntary oil production cuts by OPEC+ also had a minimal impact on oil prices.
- Financial markets have remained broadly stable, even though market participants initially priced in heightened geopolitical risk in the MENA region. Despite widening at the conflict’s start, sovereign spreads have generally narrowed and are tighter compared to levels in early October before the conflict. After an initial acceleration in international portfolio outflows, net outflows from debt and equity funds in the region have reverted to preconflict levels.
Furthermore, the heightened security situation in the Red Sea has raised concerns about the conflict’s impact on trade and shipping costs. Several major shipping companies have announced they are diverting cargo through alternative shipping routes, with potential implications for global supply chains and commodity trade. In this respect, during the first half of 2023, trade going through the Suez Canal, connecting the Red Sea to the Mediterranean Sea, represented about 12 percent of global trade, including 30 percent of global container traffic, 10-15 percent of global seaborn cargo, and 8 percent of
global liquified natural gas shipments.
However, as of January 21, 2024, the 10-day cumulative shipping volume through the Suez Canal had dropped close to 50 percent relative to the previous year. In addition, freight costs for routes between Europe/Mediterranean Sea and China have surged by more than 400 percent since mid-November, likely reflecting a combination of increased insurance costs amid elevated security risks and higher transportation costs associated with longer shipping routes.
The security situation in the Red Sea has raised concerns over the Gaza-Israel conflict’s impact on trade and shipping costs. Regional freight costs have surged amid new security risks and a shift to alternative shipping routes.
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— IMF Middle East & North Africa (@IMFinMENA) January 31, 2024
