The Memo: Shipping and global trade disrupted amidst Houthi Red Sea attacks

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Shipping and global trade disrupted amidst Houthi Red Sea attacks

James Westmacott – 22 January 2024

Positioned at the nadir of the Red Sea and on the tip of the Gulf of Aden, lies Yemen, a country in the midst of a decade-long civil war. Described as the ‘world’s worst humanitarian crisis’ by the United Nations (UN), it is estimated that roughly two-thirds of the Yemeni civilian population face grave threats to their livelihoods and remain in urgent need of humanitarian assistance. The conflict stems from the highly fraught nature of the country’s politics, with incumbent President Rashad al-Alimi representative of the nation’s official government, who remain locked against armed rebel groups. The most prominent of those, and the group currently hitting the headlines for their Red Sea attacks, are the Houthis – a Shia Islamist group that emerged in the 1990s. The Houthi rebels control vast swathes of Yemeni land - including the nation’s capital Sana’a – and benefits from the backing of Iran.

But what’s all this got to do with shipping law and international trade? Well, the story of the current Red Sea debacle can be traced to the crisis in Gaza. The Houthis themselves would point to the events in Gaza as the central factor in stepping up their naval attacks, which they initially began by firing drones and missiles towards Israel, before it culminated in the hijacking of a commercial Red Sea ship. The group have predominantly targeted Israel-linked ships moving through the inlet of the Indian Ocean - that is, any traffic destined for Israeli shores or rather ships from Western nations publicly allied and in support of Israel - which has in fact included carrier vessels from both the US and UK. Case in point, many US-operated ships have been successfully targeted, whilst a Greek vessel heading to Israel was also hit just days ago.

Understandably so, major shipping companies are fearful of attack, and acutely aware of the risks of endangering the security of employees on board. As a result, leading sea freight conglomerates such as Maersk, Hapag-Lloyd, and MSC have diverted their ships from the Red Sea/Suez Canal route, choosing to instead roll back the years and send any traffic around the Cape of Good Hope, which of course adds significant time and cost to journeys. As such, seven of the world’s ten largest shipping companies have suspended operations in the region. The Secretary General of the International Maritime Organisation – the UN agency responsible for global shipping regulation – has therefore condemned the attacks, referring to the institution’s strong commitment to protecting seafarers and maintaining global supply chains.

But the severity of the situation is underlined by the fact that the goods that traverse the Red Sea are estimated to account for 15% of global sea trade carrying the likes of grains, seaborn liquid gas, and oil. A 60% decline in Red Sea shipping traffic, according to German economic institute IfW Kiel, resulted in global trade dropping by 1.3% in December, whilst global energy prices are also expected to rise. The significance of the waterway channel in connecting Europe to Asia and east Africa has meant that the West has decided to act. Last week, bombing campaigns were launched by the US and UK in an attempt to deter the Houthis in their attacks.

It goes without saying that the companies affected by the Red Sea attacks have multiple legal avenues to consider, largely through international law protection, insurance agreements, and any further contractual security measures. Thousands of bilateral and multilateral investment agreements exist which permit foreign investors to instigate arbitration against a state if foreign investors’ property has been expropriated, harmed, or neglected. For instance, the Energy Charter Treaty – of which Yemen became a signatory in 2019 – would require the nation to compensate targeted companies for any conflictual damage. Furthermore, Law No. 15 in Yemen’s own constitution – ratified in 2010 – states that any foreign investment involving the Republic, must be protected, whilst Yemeni commercial courts are bound by the procedures of the UN Commission on International Trade Law, which Houthi attacks have unquestionably breached. Unique to shipping law too, it is likely that disputes against Yemen will be prompted under the UN Convention on the Law of the Sea for unlawful charges levied on foreign ships in the nation’s territorial waters.