Crisis in the Red Sea: an assessment of the economic consequences for the world and Russia is given

Expert Maslennikov: “We have our own reserve in the form of the Northern Sea Route”

The crisis in the Red Sea, where shipping was paralyzed due to attacks by the Yemeni Houthis, is beginning to affect the entire global economy and trade. In particular, as Bloomberg writes, the financial performance of companies from different sectors is suffering; inflation is rising in the Eurozone and the UK – due to jumping freight rates. The interests of Russian business are affected to a lesser extent for now, but this may not last long.

Due to supply disruptions, retailers (such as the UK’s Tesco, Marks & Spencer and Next) are warning of risks to their profits, and manufacturers (notably Tesla and Volvo Car AB) are warning of plans to shut down their factories. All of them are heavily dependent on sea freight. For example, French furniture retailer Maisons du Monde sources 75% of its products from Asia, 90% of which is shipped by ship.

The winners were the largest transport companies, including the Danish AP Moller-Maersk and the German Hapag-Lloyd AG, as well as the American ZIM Integrated Shipping and the Japanese Mitsui OSK Lines. Insurers are also charging higher premiums for cargo insurance: on some routes, prices have jumped tenfold. Well, the air transportation sector, especially such companies, found itself in the most advantageous position. Let us remind you that up to 12% of global trade flows usually pass through the Red Sea. However, due to security threats, at least 2,300 ships were rerouted through the Cape of Good Hope at the southern tip of Africa. This lengthens the travel time between Asia and Europe by 10-15 days, significantly increasing the cost of both transportation (by hundreds of dollars per container) and insurance.

According to the German analytical institute IfW Kiel, from November to December 2023, global trade decreased by 1.3% due to the crisis. In Germany, a decrease in exports by 2% and imports by 1.8% was recorded. Today, about 200,000 containers are transported through the Red Sea daily, up from 500,000 in November.

“Up to 10% of supplies from other parts of the world go to Europe through the Suez Canal and the Strait of Hormuz,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – The situation is really very serious, although, of course, this kind of transport and logistics collapse has happened in this explosive region before. The current tension will not allow anyone to relax. The crisis will spread, covering ever new areas. For example, it recently began to hit food supplies, depriving the poorest countries of humanitarian aid. Circular, long-distance routes are becoming prohibitively expensive for carriers, freight rates are rising, and to this is added the problem of the Panama Canal becoming shallower.”

The situation is so unpredictable that Russian ships are unlikely to avoid trouble in the narrow neck of the Suez Canal. You may have to carry cargo around Africa. Of course, Maslennikov argues, we have our own reserve in the form of the Northern Sea Route, which is especially relevant in the case of supplies to Asia. When ice conditions improve in two or three months, Russia may well use this route. Depending on how events develop in the Red Sea, everyone else’s interest in it may grow.

“Among other things, the crisis acts as an additional factor in driving up inflation expectations. First of all, business expectations,” notes Maslennikov. – Plus, it slows down business activity. Back in December, inflation in both the US and the eurozone moved up – by 0.3 and 0.5 percentage points, respectively.”