A general view of the Suez Canal is seen from Al Salam “Peace” bridge on the Ismalia desert road before the opening ceremony of the New Suez Canal, in Egypt, August 6, 2015. REUTERS/Amr Abdallah Dalsh/File Photo
A prolonged disruption of shipping through the Suez Canal due to attacks by Yemen’s Iran-aligned Houthi militants on ships in the Red Sea could have macroeconomic repercussions, impacting prices and economic growth, particularly in Europe. Approximately 15% of world shipping, including about 30% of global container trade, passes through the Suez Canal. If shipping is rerouted around Africa, it could increase round-trip journey times by about two and a half weeks, reducing shipping capacity and raising costs. UBS estimates that the longer transit via the Cape of Good Hope would decrease effective capacity by 25% for an Asia-Europe voyage. This disruption, even if short, could have a ripple effect lasting several months.The historical precedent of the six-day blockage in 2021 resulted in economists estimating daily halted trade worth up to $10 billion, with potential insurance claims exceeding $2 billion. Current costs could manifest through increased energy prices, higher shipping rates, and rising insurance fees. While oil prices rose somewhat, gas prices fell, indicating limited concern about LNG traffic delays. Higher shipping rates and insurance fees compound existing negative trends in shipping costs.Another complex cost involves shipment delays, potentially pushing up consumer prices as goods take longer to reach consumers. This could lead to supply chain frictions, rising inflation, and slower growth, although not at the magnitude seen during the COVID-19 pandemic. While the disruptions so far may not significantly impact growth or inflation, a prolonged situation could lead to increased inflation.Central banks, having already tightened monetary policies in response to global supply chain disruptions and post-pandemic recovery measures, are unlikely to respond unless they observe persistent impacts altering inflation trajectories in the longer term. While central banks aim to maintain current high-interest rates for some time, any additional turmoil affecting global inflation may increase caution regarding rapid policy easing.
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