Ben Joseph, UCAN
With the ongoing standoff in the Red Sea and the disruption affecting the world’s largest traded commodity, the poor are set to fall on hard times yet again.
Since 2019, the world’s poor have had too much to bear. They have endured the Covid-19 pandemic and its costly techno-centric “new normal.” Then in 2022 came Russia’s war on Ukraine, which made food costly and job opportunities scarce.
In 2024, Bab-el Mandeb [Arabic for Gate of Grief], the sea route that connects resource-rich Asia with industrialised Europe, has become a hotspot targeted by the weapons of Houthi rebels in Yemen who claim to be supporting Hamas militants in Gaza.
The conflict will place Asia’s poor in a debilitating situation as it impacts goods shipped from their soil or imports from elsewhere.
According to the International Maritime Organisation, Bab-el Mandeb, the 32 kilometre-wide channel that divides Eritrea and Djibouti on the African side and Yemen on the Arabian Peninsula, hosts up to a quarter of the world ships due to its strategic location.
That narrow gap into the Indian Ocean sees the daily passage of 4.5 million barrels of oil from Asia to Europe.
Since 2019, the world’s poor have had too much to bear. They have endured the Covid-19 pandemic and its costly techno-centric ‘new normal.’ Then in 2022 came Russia’s war on Ukraine, which made food costly and job opportunities scarce
The Houthi attacks on ships with supposed links to Israel and Operation Prosperity Guardian, launched by the US, UK, Canada, France, Italy, Spain, the Netherlands, Norway, Bahrain, and the Seychelles in late December, have led to Maersk, the world’s second-largest ocean carrier, suspending Red Sea transits indefinitely.
German shipping giant Hapag-Lloyd is avoiding the Red Sea route altogether.
More firms have started transporting goods from Asia to Europe via air to avoid delays and risks due to having to divert around Africa’s Cape of Good Hope which would add at least 10 more days of travel.
According to maritime trade experts, the longer route will cost an extra one million dollars in fuel than it would if ships used the Suez Canal and the Red Sea.
The attacks have ratcheted up war risk insurance from 0.02 per cent of the value of the cargo to 0.7 per cent, according to gCaptain.com, a maritime news site. The increased cost will remain even after the threat of attack on ships subsides.
Following US and UK airstrikes against Houthi rebel sites, Brent crude prices jumped by four per cent to a high of US$80.75 a barrel on January 12.
Disruption to oil trade is the most significant risk as major industrial economies in Asia like China, India, Japan, and South Korea will be forced to apply the breaks on their industrialisation and the poor in Asia will find new jobs difficult to come by this year.
Disruption to oil trade is the most significant risk as major industrial economies in Asia like China, India, Japan, and South Korea will be forced to apply the breaks on their industrialisation and the poor in Asia will find new jobs difficult to come by this year.
The slow growth of businesses and the increased cost of essential commodities will add to the hunger and thirst of the poor across the world, most of whom live in Asia and Africa.
At least 700 million people around the world are considered poor, living on a daily income of less than US$2.15. Of them, more than 50 per cent live in Sub-Saharan Africa, and at least 40 per cent in South Asian nations.
Collectively, China, India, and the 10-member ASEAN bloc account for 50 per cent of European exports, including pearls, precious or semi-precious stones, distilled products, and electrical machinery, to Asia.
From these nations, Europe imports boilers, mineral fuels, mineral oils, distilled products, and organic chemicals.
At least 700 million people around the world are considered poor, living on a daily income of less than US$2.15. Of them, more than 50 per cent live in Sub-Saharan Africa, and at least 40 per cent in South Asian nations.
Asia is one of the key markets for Europe to source metals like aluminum. The shipping disruptions come at a time when Western European energy-intensive aluminum production is at this century’s lowest.
With the Houthi threat, workers in Asia’s aluminum-exporting nations like India will be hit hard. India sends nearly 25 per cent of its aluminum and aluminum products to the EU, according to Indian commerce ministry data.
Agricultural flows to and from Asia will see significant disruptions as input costs increase due to higher diesel prices and potentially higher fertiliser prices, because the narrow strait allows nearly eight percent of the world’s grain to pass through it.
The Bab-el Mandeb standoff is taking place as the World Bank in its latest report in January predicted a bad five-year period of growth for the global economy.
According to the report, global economic growth is set to slide to 2.4 per cent in 2024 from 2.6 per cent last year. Energy prices will go up and inflation will soar followed by sluggish global trade, the World Bank warned.
The jump in energy prices will make food costly and deindustrialisation will gather more steam. The rise in inflation and slower growth in Asia will reverse the hike in workers’ pay. This will cause a dramatic decline in their purchasing power.
The Houthis, a militia group named after its founder, Hussein Badreddin al-Houthi, have not much left to lose after a decade of fighting a US proxy war, spearheaded by wealthy Saudi Arabia and the influential United Arab Emirates since 2014.
They will be keen on continuing attacks on trade vessels until Israel ends its military campaign in Gaza.
With an estimated 20,000 fighters, there is no guessing the full spectrum of Houthis’ retaliatory intentions. The Houthis have vowed to attack any ship that joins the US-led coalition.
With the military campaign in Bab el Mandeb, the US is in more peril. The world’s biggest military spender [US$886 billion in 2024] is now engaged on five separate fronts: Ukraine, Gaza, Yemen, Iraq, and Syria.
Formal adversaries like Russia, Iran, North Korea, and Syria and informal non-state foes like Hezbollah in Lebanon, armed groups in Palestine, and the Islamic State throughout the world, have proved that they are never depleted and can easily hold out until war fatigue bites the US economy.
The world’s richest nation, its formal foes, and its non-state adversaries are diverting finite natural resources to sustain their war economy while the world is passing through the greatest transition to a corporate-led knowledge-based economy, which is skewed in favour of employers as it has fewer workers.
The jump in energy prices will make food costly and deindustrialisation will gather more steam. The rise in inflation and slower growth in Asia will reverse the hike in workers’ pay. This will cause a dramatic decline in their purchasing power.
This economic and political impact will persist for years, leaving the poor groping in the dark.
*The views expressed in this article are those of the author
and do not necessarily reflect the official editorial position of UCAN.
