Will the Red Sea crisis cause a return of the global supply crisis?

 

A ship in the Suez Canal. Fox Business/Getty.

The crisis in the Red Sea is causing concerns that the global supply crisis could return. Fox Business. Shipping prices have already increased as most ships are no longer braving the Red Sea due to attacks from Houthi rebels from Yemen. 15% of all shipping and 30% of container shipping used to go through the Red Sea via the Suez Canal. Shipping is now being routed around the Cape of Good Hope in Africa, adding weeks to the journey and costing thousands of dollars a day. Compounding the global shipping industry is the fact that the Panama Canal is also facing issues due to drought, which is also delaying shipping. The fear is that the shipping delays and higher shipping costs could lead to even further inflation and even shortages of certain products that pass through the legion. 

My Comment:

This is a pretty bad situation for the global economy. The Red Sea is a key shipping route and though it hasn't been closed entirely, shipping is a lot less common through it now than it was before the war started. That is costing the world millions of dollars and the war is just starting. Who knows what will happen if the war really heats up?

The Panama canal situation is going to just make things worse. From what I understand if ships can't go through the canal, they either have to go the long way around the Cape of Good Hope in Africa or take the extremely treacherous route around the Cape of Magellan in South America. Neither is a good solution and both would add millions in terms of shipping and insurance costs. 

And I don't think the situation is going to get better anytime soon. All the Panama Canal situation needs is rain, but the Yemen conflict? That's not going away anytime soon. From what I understand the strikes on targets in Yemen did little to damage the Houthis offensive capabilities. And there is very little chance that the Houthis will give up the war when the war in Gaza is still happening. 

The United States is somewhat insulated from the crisis. Most of our shipping comes from the coasts and very little of our goods go through either canal. We also get most of our energy domestically so we shouldn't be facing any kind of economic collapse if this war goes on for months or years. 

The rest of the world is not so lucky. Europe gets a lot of their goods and services through the Suez Canal and this is going to cost them a lot. I would expect a major increase of energy prices for them, and it would probably affect us as well due to the interconnectedness of the global economy. Unlike the United States though, Europe is a lot less energy independent so there is very little they can do. 

The real big losers out of all of this is probably Egypt. Unlike the other players in the Hamas war, they had very little to do with the situation. But they are losing billions of dollars in transit fees for the Suez Canal. That is going to do huge damage to their economy and it's honestly surprising that they haven't joined the conflict against the Houthis... 

I've been on record as saying that the economy is a lot weaker than the media and the Democrats say it is and I am expecting a major recession, or even a 2nd Great Depression. Could this be the shock that pushes it over the edge? Despite the problems the Red Sea crisis is causing, I don't think it alone is enough to do so. But if we have some other kind of global economic shock on top of it, like another major war or huge natural disaster? Absolutely...