Client Alert
October 24, 2024
On Oct. 16, 2024, U.S. B-2 Stealth Bombers struck underground weapons storage facilities in Yemen controlled by Houthi rebels.
The Houthis have spent the last year protesting Israel’s war in Gaza by attacking vessels in and around the Red Sea, seeking to disrupt maritime trade through the Suez Canal. This sudden and powerful U.S. action, particularly using such advanced weapon systems, likely foreshadows worsening conflict in the Middle East between Israel and Iran.
It implies U.S. concern that Iran could plausibly blockade the strategically vital Strait of Hormuz, which would compound the impact from existing disruptions to the embattled Suez Canal — and could very well represent a destabilizing, black swan-type event for the global economy. This would explain why the U.S. is using significant military force against the Houthis to help keep the Suez Canal open.
The Houthis have rendered the Suez Canal largely inaccessible for the past year. Since November 2023, the Houthis have launched ~130 attacks on vessels traversing the Red Sea and surrounding areas as they come and go through the canal. As of mid-September, the canal saw only 29 average daily transits compared to 80 in October 2023, before the Houthi attacks began. The canal’s average daily trade volume has dropped more than 70%.
The Strait of Hormuz, for its part, is one of the top strategic shipping straits in the world. It is well known that the strait is a vital sea lane for oil produced in the Persian Gulf — a commodity that continues to power much of the global economy. Less well known is the importance of the Strait of Hormuz for global transshipping (i.e., the point at which goods are transferred between ships). The UAE, positioned on the eastern end of the Arabian Peninsula along the Strait of Hormuz — directly opposite Iran — hosts Jebel Ali, the world’s twelfth busiest port. Because of the UAE’s role as an international center for commerce bridging Western and Eastern markets, its strategic location, and its designation as a free-trade zone (known as the Jebel Ali Free Zone or JAFZA), the port attracts significant global trade and transshipment. And, importantly, vessels unloading and reloading at Jebel Ali must pass through the Strait of Hormuz.
Exiger analyzed shipments traversing the Strait of Hormuz that use the Jebel Ali port, assessing the impact that a closure of the strait could have on the global economy.
- At least 58 different industries may be disrupted by the closure of, or reduced traffic through, the Strait of Hormuz. This includes various kinds of merchandise, textiles, and luxury goods, with companies in those industries accounting for 29% of shipments leaving Jebel Ali in 2024.
- In the last two years, 10% (~41,000) of identified outbound shipments leaving Jebel Ali were destined for Europe or North or South America. After clearing the Strait of Hormuz, many outbound shipments have historically headed west through the Bab el-Mandeb, Red Sea, and then Suez Canal en route to Europe before crossing the Atlantic Ocean. ~17,000 of these shipments were headed specifically to the U.S., carrying industrial goods and commodities ranging from turbojet engines and printing machinery to ethyl alcohol.
- Approximately 350,000 shipments over the past two years involved transactions where the shipper and receiver were part of the same corporate family — underscoring that companies use Jebel Ali as a transshipment point to move goods among their affiliates and subsidiaries. ~26,000 of these intracompany shipments were destined for Europe or North or South America. Illustrative intracompany goods carried on this route include automobiles, electric transformers, and other machinery parts.
Exiger continues to monitor at-risk supply chains and is working closely with customers to proactively prepare for any potential disruptions.
