Yemen’s Houthi Rebels’ Attacks on Suez Canal Deepen Egypt’s Economic Woes
Cairo: Ongoing attacks by Yemen’s Houthi rebels in the Red Sea have resulted in shipping companies avoiding the Suez Canal, which is a crucial source of revenue for Egypt as the country grapples with a severe economic crisis. According to data from the International Monetary Fund, cargo transported through the Suez Canal in the first week of 2024 decreased by 35 percent compared to the same period last year.
While the financial impact is currently limited, analysts warn that if Houthi attacks continue to disrupt maritime traffic through the vital shipping lane connecting Europe and Asia, it will have severe consequences for Egypt. The Suez Canal, which opened in 1869, plays a crucial role for Egypt, generating $9.4 billion in transit fees in the fiscal year 2022/23.
Due to the Houthi attacks, companies have opted for the much longer route around Africa’s Cape of Good Hope. This alternative route witnessed a significant increase of 67.5 percent in cargo compared to the same period last year, according to the IMF’s PortWatch. Danish shipping giant Maersk announced that it would divert all vessels away from the Red Sea for the foreseeable future, citing the volatile situation and rising insurance costs.
Since November 18, there have been 25 attacks on commercial vessels in the southern Red Sea and Gulf of Aden, as reported by the US military. The Houthi rebels, aligned with Iran’s “axis of resistance” against Israel, claim that these strikes are in solidarity with Palestinians. Israel has been conducting a three-month campaign to destroy Hamas in the Gaza Strip following an attack on October 7.
The Red Sea is a vital shipping lane, facilitating 12 percent of world trade, from the Bab al-Mandeb Strait in the south to Egypt’s Suez Canal in the north, according to the International Chamber of Shipping. Despite the presence of a naval coalition patrolling the Red Sea, shipping companies are willing to bear the cost of the longer route to avoid using the Egyptian waterway.
The economic crisis in Egypt has already seen the local currency lose half its value since March 2022, with inflation exceeding 35 percent. The country heavily relies on Suez Canal revenues, tourism, and remittances from Egyptian workers abroad, which have also suffered significant declines. These revenues are crucial for Egypt’s military and social welfare spending, as a large portion of the population lives on or below the poverty line.
While the impact of the Houthi attacks on the Suez Canal is currently manageable, continued disruptions could lead to significant concerns in the coming months. The situation highlights the importance of finding a resolution to ensure the uninterrupted operation of this vital maritime artery.
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