Red Sea Passage Remains a No-Go for Shipping Despite U.S. Action
The largest commercial shipping companies continue to avoid the Red Sea and the Suez Canal, despite a recent ceasefire agreement between the United States and Houthis intended to make the trade lanes safer.
The ceasefire, which began May 6, ended a U.S. campaign that involved more than 1,100 strikes against the Houthis in Yemen and became a source of embarrassment for the Trump administration after group chats about the strikes inadvertently became public. The Pentagon had planned on a monthslong bombardment, but President Donald Trump ended it after about 50 days.
'If the intention was to restore freedom of navigation, which is what they stated it was, then the results speak for themselves: The shipping industry has not gone back,' said Richard Meade, editor-in-chief of Lloyd's List, a shipping publication.
Ship traffic through the Red Sea is down by around three-fifths since 2023 when the Houthis started targeting ships there in solidarity with Hamas in its war with Israel in the Gaza Strip, Meade said. Fearing that their vessels would be struck, big shipping companies avoided the Red Sea and the Suez Canal, taking a much longer route around the southern tip of Africa to travel between Asia and Europe.
The Houthis have said they are still at war with Israel and will attack vessels bound for the country. And though the Houthis have not attacked a commercial vessel since December, shipping companies say they worry that their vessels may be hit, deliberately or mistakenly, and have no plans to sail the southern part of the Red Sea anytime soon.
'We're pretty far from the threshold,' said Vincent Clerc, the CEO of A.P. Moller-Maersk, a large shipping line based in Copenhagen, Denmark. Speaking soon after the ceasefire in May, he said the Red Sea would have to remain safe for the foreseeable future before the company's vessels returned.
Shipping executives said they also feared a severe disruption to their networks if they returned to the Red Sea but suddenly had to pull out of the region because attacks resumed.
When Trump started the military engagement with the Houthis in March, he said their attacks on shipping had cost the global economy 'BILLIONS of dollars.' Commenting on the ceasefire, he said, 'They say they will not be blowing up ships anymore.'
Oman brokered the ceasefire between the Houthis and the United States. Describing the truce, Oman's foreign minister said that 'neither side will target the other, including American vessels, in the Red Sea and Bab al-Mandab Strait, ensuring freedom of navigation and the smooth flow of international commercial shipping.'
But maritime analysts said it was unclear whether the ceasefire applied just to American ships.
'Was this only an agreement between the Americans and the Houthis not to fire at each other's military capabilities, or was this something that did indeed also cover the merchant ships going through the area?' asked Jakob Larsen, chief safety and security officer at BIMCO, a shipping trade group.
Nor did the ceasefire appear to involve the Houthis' conflict with Israel.
The Houthis expanded their attacks on Israel last month to include vessels at or on their way to Haifa, an Israeli port, noted Jack Kennedy, head of country risk for the Middle East and North Africa at S&P Global Market Intelligence. And while the Houthis are unlikely to attack American vessels during their ceasefire, 'the unclear designations around a vessel or company's relationship to Israel and Israeli ports, and uncertainties around Houthi targeting accuracy, mean there is a severe risk to ships transiting the Red Sea,' Kennedy said.
In an email to The New York Times, the Houthi-linked group that communicates with the shipping industry said that 'no guarantees can be provided to shipping companies.'
The group added: 'Sanctions and prohibitions are limited exclusively to companies and vessels affiliated with or linked to' Israel. The group also said the Yemeni armed forces' actions 'are carried out through a precise mechanism designed to prevent mistakes.'
The White House and the Pentagon did not comment.
Even though the route around Africa uses more fuel and crews are at sea for longer, shipping operations have adapted to the detour.
'If it were really a pain, if this new route was really imposing costs, I think you might see more countries willing to take the risk,' said Jennifer Kavanagh, director of military analysis at Defense Priorities, a research institute that favors restraint in foreign policy.
In fact, traveling longer distances has allowed the shipping lines to deploy the glut of new ships that they ordered during the pandemic trade boom. Before the Red Sea attacks, the supply of new vessels threatened to depress shipping rates and the earnings of shipping companies.
'Frankly, this disruption, this long way round, has allowed the industry to a certain extent to defy economic gravity,' Meade said.
Still, one large shipping company, CMA CGM, based in Marseilles, France, has been sending a small number of vessels through the Red Sea. Ship tracking sites showed that, in recent weeks, at least five had been in the southern part of the Red Sea, near Yemen.
But CMA CGM said in a statement that it did 'not plan to resume transits through the Suez Canal on a large scale in the short term, unless security conditions allow it.'
The rerouting of vessels away from the Red Sea has deprived Egypt of billions of much-needed dollars in toll revenue from the Suez Canal. To coax shipping companies back, the canal is offering large vessels a 15% discount to go through the canal.
This article originally appeared in The New York Times.
Copyright 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
31 minutes ago
- Yahoo
Middle East tensions put investors on alert, weighing worst-case scenarios
By Saqib Iqbal Ahmed and Lewis Krauskopf NEW YORK (Reuters) -Investors are mulling a host of different market scenarios should the U.S. deepen its involvement in the Middle East conflict, with the potential for ripple effects if energy prices skyrocket. They have honed in on the evolving situation between Israel and Iran, which have exchanged missile strikes, and are closely monitoring whether the U.S. decides to join Israel in its bombing campaign. Potential scenarios could send inflation higher, dampening consumer confidence and lessening the chance of near-term interest rate cuts. This would likely cause an initial selloff in equities and possible safe-haven bid for the dollar. While U.S. crude prices have climbed some 10% over the past week, the S&P 500 has been little changed as of yet, following an initial drop when Israel launched its attacks. However, if attacks were to take out Iranian oil supply, "that's when the market is going to sit up and take notice," said Art Hogan, chief market strategist at B Riley Wealth. "If you get disruption to supply of oil product on the global marketplace, that is not reflected in today's WTI price and that is where things get negative," Hogan said. The White House said on Thursday President Donald Trump would decide on U.S. involvement in the conflict in the next two weeks. Analysts at Oxford Economics modeled three scenarios, ranging from a de-escalation in the conflict, a complete shutdown in Iranian production, and a closure of the Strait of Hormuz, "each with increasingly large impacts on global oil prices," the firm said in a note. In the most severe case, global oil prices jump to around $130 per barrel, driving U.S. inflation near 6% by the end of this year, Oxford said in the note. "Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the U.S. this year," Oxford said in the note. OIL IMPACT The biggest market impact from the escalating conflict has been restricted to oil, with oil prices soaring on worries that the Iran-Israel conflict could disrupt supplies. Brent crude futures have risen as much as 18% since June 10, hitting a near 5-month high of $79.04 on Thursday. The accompanying rise in investors' expectations for further near-term volatility in oil prices has outpaced the rise in volatility expectations for other major asset classes, including stocks and bonds. But other asset classes, including stocks, could still feel the knock-on effects of higher oil prices, especially if there is a larger surge in oil prices if the worst market fears of supply disruptions come true, analysts said. "Geopolitical tensions have been mostly ignored by equities, but they are being factored into oil," Citigroup analysts wrote in a note. "To us, the key for equities from here will come from energy commodity pricing," they said. STOCKS UNPERTURBED U.S. stocks have so far weathered rising Middle East tensions with little sign of panic. A more direct U.S. involvement in the conflict could, however, spook markets, investors said. Financial markets may be in for an initial selloff if the U.S. military attacks Iran, with economists warning that a dramatic rise in oil prices could damage a global economy already strained by Trump's tariffs. Still, any pullback in equities might be fleeting, history suggests. During past prominent instances of Middle East tensions coming to a boil, including the 2003 Iraq invasion and the 2019 attacks on Saudi oil facilities, stocks initially languished but soon recovered to trade higher in the months ahead. On average, the S&P 500 slipped 0.3% in the three weeks following the start of conflict, but was 2.3% higher on average two months following the conflict, according to data from Wedbush Securities and CapIQ Pro. DOLLAR WOES An escalation in the conflict could have mixed implications for the U.S. dollar, which has tumbled this year amid worries over diminished U.S. exceptionalism. In the event of U.S. direct engagement in the Iran-Israel War, the dollar could initially benefit from a safety bid, analysts said. "Traders are likely to worry more about the implicit erosion of the terms of trade for Europe, the UK, and Japan, rather than the economic shock to the US, a major oil producer," Thierry Wizman, Global FX & Rates Strategist at Macquarie Group, said in a note. But longer-term, the prospect of US-directed 'nation-building' would probably weaken the dollar, he said. "We recall that after the attacks of 9/11, and running through the decade-long US presence in Afghanistan and Iraq, the USD weakened," Wizman said. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
38 minutes ago
- Yahoo
This Dividend King Stands Out as a Long-Term Favorite
PepsiCo, Inc. (NASDAQ:PEP) is one of the best dividend stocks for a bear market. In uncertain times, investing in a dividend-paying stock that has seen a significant drop in price can be a smart move, provided the company's long-term fundamentals remain strong. A close up of a glass of a refreshing carbonated beverage illustrating the company's different beverages. PepsiCo, Inc. (NASDAQ:PEP) fits that description well. Despite a nearly 14% decline in its share price since the beginning of 2025, the company maintains its reputation as a Dividend King, with 53 consecutive years of dividend increases. The latest boost, which was a 5% rise, was announced alongside its Q4 2024 earnings. Such a consistent track record reflects a solid business strategy that performs well regardless of market conditions. PepsiCo, Inc. (NASDAQ:PEP) dividend history speaks to its disciplined management and operational strength. However, recent challenges have emerged. In April, the company lowered its annual profit outlook, citing rising production costs and weaker consumer spending, pressures linked to economic uncertainty stemming from wide-reaching tariffs introduced by President Donald Trump. Even so, analysts view these issues as temporary. Once the broader economic environment stabilizes, demand is expected to recover. PepsiCo, Inc. (NASDAQ:PEP) currently offers a quarterly dividend of $1.4225 per share and has a dividend yield of 4.4%, as of June 17. While we acknowledge the potential of PEP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: and Disclosure. None.
Yahoo
39 minutes ago
- Yahoo
Taiwan central bank says US debt rising too fast may impact trust in Treasuries
TAIPEI (Reuters) -Taiwan's central bank governor warned on Saturday that rapidly rising U.S. debt could be "unfavourable" to the outlook for U.S. Treasuries and that U.S. President Donald Trump's trade policies have made investors cautious. Taiwan's $593 billion in foreign exchange reserves are more than 80% made up of U.S. Treasury bonds, according to the central bank, which said earlier this month that Treasuries were "sound" and still favoured by investors. It added there were no worries about the dollar's position as the leading international reserve currency. Governor Yang Chin-long, in a speech posted on the central bank's website, said Trump's repeated criticisms of the U.S. Federal Reserve's monetary policy have caused concerns about its independence. "In addition, Trump 2.0's trade policy has made investors hesitant about holding U.S. Treasury bonds; Trump's budget, the 'One Big Beautiful Bill Act,' may cause U.S. debt to expand too quickly, which is unfavourable to the outlook for U.S. sovereign debt," he said. "All of these have had a significant impact on the international monetary system centred on the U.S. dollar and based on U.S. creditworthiness." Trump's sweeping tax-cut and spending bill is the centerpiece of his domestic agenda. The bill would lead to a larger-than-expected $2.8 trillion increase in the federal deficit over the decade, despite a boost to U.S. economic output, the nonpartisan Congressional Budget Office projected on Tuesday. Trump, in his first few weeks in office, also announced sweeping tariffs on a broad swathe of countries and trading partners, including Taiwan, only to pause them for 90 days in April to allow for talks to take place. Yang said Trump had been hoping the tariffs could resolve the U.S. trade deficit. "However, the tariff policy not only fails to solve the structural problems, it will also impact the U.S. economy, and threaten to further affect the outlook for global trade and the economy."
