The devastating consequences of the US war in Yemen for the global economy are named

The protracted conflict in the Red Sea and escalating tensions in the Middle East risk devastating effects on the global economy, reigniting inflation and energy supply disruptions, some of the world’s leading economists have warned.

According to The Observer, ahead of British Prime Minister Rishi Sunak’s expected statement in the House of Commons on Monday regarding British and US airstrikes on Houthi targets in Yemen, World Bank economists say the crisis now threatens to result in higher interest rates, lower economic growth, persistent inflation and greater geopolitical uncertainty.

After another night of strikes against Iran-backed rebels in Yemen, President Joe Biden said the United States had sent a personal message to Tehran that “we are confident we are well prepared.” Speaking to reporters on the White House lawn Saturday on his way to Camp David, Biden declined to go into further detail.

But there is now growing concern in government circles in London and Washington that as Sunak and Biden fight for re-election, events in the Middle East could undermine what appeared to be improved prospects for economic recovery, and therefore their chances of electoral success.

As airstrikes against Houthi targets in Yemen enjoy broad cross-party support in Westminster, Prime Minister Sunak will face questions from concerned British MPs about the long-running conflict and the long-term plan for peace in the Middle East. Some left-wing Labor MPs are expected to press Keir Starmer over why he backed the military strikes, saying he would only support such action after Parliament voted on it.

Joe Biden also faced pushback from progressives in his own party, who were already strongly opposed to U.S. military support for Israel’s actions in Gaza. California Congressman Ro Khanna said: “The President must come to Congress before he attacks the Houthis in Yemen and drags us into another Middle East conflict.”

In its latest World Economic Outlook report, the World Bank notes that the Middle East crisis and the conflict in Ukraine have created real risks. “An escalation of the conflict could lead to sharp increases in energy prices, with wider implications for global activity and inflation,” the report said.

“Other risks,” the World Bank warns, “include financial stress related to real interest rates, persistent inflation, weaker-than-expected economic growth in China, further trade fragmentation and climate change-related disasters.”

The report adds: “Recent attacks on commercial ships transiting the Red Sea have already begun to disrupt key shipping routes, weakening supply networks and increasing the likelihood of inflation problems. As conflicts escalate, energy supplies may also be significantly disrupted, leading to sharp increases in energy prices. This could have significant spillover effects on other commodity prices and would increase geopolitical and economic uncertainty, which in turn could dampen investment and lead to further weakening of economic growth.”

John Llewellyn, former chief economist of the Organization for Economic Co-operation and Development (OECD), states: “This has become a serious problem.” He put the likelihood of major disruption to global trade at 30%, up from 10% a week ago: “There is a dire and inevitable development that could see the situation in the Red Sea spill over into the Strait of Hormuz and the wider Middle East.”

Institute for Fiscal Studies economist Ben Zaranko told The Observer. “If we’ve learned anything over the past few years, it’s that major disruptions can and do happen. Spending every penny of safety margin on tax cuts leaves him with little wiggle room if a nasty shock hits and the outlook worsens.”

The conflict in the Middle East escalated on Thursday when dozens of UK and US strikes were carried out against Houthi targets in Yemen, The Observer recalls. The strikes were carried out in retaliation for attacks on ships passing through the Red Sea, which paralyzed shipping through one of the world’s most important shipping channels. The Houthis say they only attack ships linked to Israel in an attempt to support Palestinians in Gaza, but many of their targets had no known ties to Israel. They also fired rockets into Israel.

A US strike on a radar site in Yemen on Friday night prompted Houthi threats of a “strong and effective response” to international attacks and fueled fears of a regional escalation in a conflict already playing out across multiple borders. Houthi spokesman Mohammed Abdulsalam said the strikes had no significant impact on the Houthis’ ability to prevent ships from passing through the Red and Arabian Seas.

The top UN official in Yemen, special envoy Hans Grundberg, warned of “serious concerns” about stability and fragile peace efforts in Yemen, which has endured years of civil war.

As The Observer notes, the Houthis are just one of several Iran-linked groups across the region, including in Syria, Iraq and Lebanon, that are attacking targets either inside Israel or that they say are linked to Israel. Hezbollah in Lebanon poses perhaps the most serious threat.

Middle East expert Faria Al-Muslimi notes: “The Houthis are far more savvy, trained and well-equipped than many Western commentators assume. Their recklessness and willingness to escalate in the face of challenge are always underestimated.”

William Bain, trade expert at the British Chambers of Commerce, said: “In November there were around 500,000 containers passing through the Suez Canal, but in December that figure fell by 60% to 200,000.”

Ships now operate on other routes, but this has increased costs: the cost of a container that cost $1,500 in November rose to $4,000 in December.

“If the situation worsens, it will only worsen the disruption, container costs will rise and global trade will contract further,” he said.

Economists, many of whom are in Davos this week for the annual World Economic Forum, are growing increasingly concerned that many of the world’s largest economies could face recession this year. They fear central banks will cut borrowing costs only marginally, exacerbating the cost of living crisis facing millions of households.

The prospect of higher oil prices could persuade central banks to stand firm and keep interest rates high for a longer period than currently expected.

Liam Byrne, chairman of the House of Commons business and trade select committee, said: “There is now a real risk that the battle on the Red Sea will lead to higher prices just as inflation has begun to fall. The World Bank is already warning that global supply chains are once again at risk… not least because this new struggle in Suez comes as drought is squeezing trade through the Panama Canal. Two of the five key to global trade are now under real threat.”