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Higher freight expenses and cargo delivery delays due to the Red Sea situation might drive up worldwide inflation, according to an OilPrice analysis published this week, citing analysts.
The continuing Houthi attacks on Red Sea tankers have created global economic disruptions, sending shockwaves through global supply lines. Analysts warn the effects on traffic on the important trade route might last for months, resulting in a shortage of container ships, which are now taking longer routes around the Cape of Good Hope in southern Africa.
This will strain supply chains and could lead to higher end-product prices, which would fuel inflation just as central banks started to signal rate cuts are in the cards,” OilPrice wrote. Inflation and high interest rates remain a big concern as major economies, which defied predictions of a recession in 2023, could be hit with a downturn this year, experts say.
Central banks could maintain high interest rates for a longer period than currently expected amid the cost-of-living crisis faced by millions of households, according to OilPrice. Europe could be particularly vulnerable to inflation, considering that the Suez Canal is its key maritime trade route from Asia, it noted.
Since the start of the Israel-Hamas conflict in October, Yemen’s Houthi rebels have launched dozens of drone and missile attacks in the Red Sea. The militant group has sworn to fight until hostilities cease and the Israeli siege of Gaza is lifted.
According to IMF data, maritime traffic across the key sea route, which generally amounts for 15% of global commercial shipping, is down 37% so far in 2024 compared to the previous year.