On Friday, a Houthi missile fired from the Gulf of Aden struck an oil tanker with connections to the United Kingdom, engulfing it in flames for several hours. The Houthis claimed that their attack on the tanker was in retaliation for perceived American-British aggression.
Such attacks are heightening tensions in the Red Sea and could have a significant impact on the American economy, which is already grappling with inflation. If they continue, it could potentially affect the global economy.
With Bidenflation persisting at 16.6%, Americans are struggling to make ends meet. Any further deterioration of the situation will become an Achilles’ heel for the President, whose approval rating stands at only 36% in the January TIPP Poll. Furthermore, if the Red Sea situation spins out of control, energy prices could increase, drawing attention to Biden’s squandering away of the Strategic Petroleum Reserve before the 2022 midterm election.
It’s like déjà vu from 1970 when the U.S. economy experienced extended stagflation, and the Arab oil embargo that began in 1973 was a significant factor. Fifty years later, in 2024, as we anticipate the U.S. may enter a prolonged stagflation, the Middle East could become a catalyst.
Approximately 50 container ships transit the Suez Canal daily, transporting goods valued at $1 trillion annually from Asia to Europe and North America. Estimates indicate that this transit represents about one-eighth, or 12%, of global trade.
The number of weekly Suez Canal and Red Sea transits has declined by 42% over the past two months.
The Houthi attacks, which started on October 19, have forced ships to take alternate routes around the Cape of Good Hope at the southern tip of Africa, adding another 3,000–3,500 nautical miles and extending their voyages by another 10 to 14 days.
The increased traffic has created congestion in ports around Africa with significant infrastructure demands.
Further, more days mean more cost. The longer trip costs $1 million extra for every round trip between Asia and Northern Europe.
Shipping companies using the Red Sea take out war risk insurance for ships that cost fiftyfold more.
According to Drewry’s World Container Index, the cost of shipping a 40-foot container increased by 23% to $3,777 this week. It has increased by 82% compared to the same week last year.
Since the Houthi attacks began, freight rates for a single 40-foot container have surged. The rates from Shanghai to New York increased by 115%, rising from $2,629 to $5,644, while the rates from Shanghai to Los Angeles increased by 95%, going from $1,979 to $3,860.
Meanwhile, rates for shipping a single 40-foot container from Shanghai to Rotterdam have skyrocketed by 384%, soaring from $1,024 to $4,951, and the rates for Shanghai to Genoa have risen by 359%, climbing from $1,370 to $6,282.
All imports to America by ship will incur increased shipping costs, which will ultimately be passed on to American consumers, leading to higher prices and inflation. Furthermore, the Red Sea attacks have the potential to disrupt supply chains. For instance, Tesla and Volvo temporarily halted some of their European production due to delays in the arrival of crucial parts at their factories. If these attacks persist, they could exacerbate supply and demand imbalances, increasing prices.
The higher shipping costs could also have an impact on global food prices. About seven million metric tons of grain pass through the Suez Canal into the Red Sea each month. Reuters reports that nearly four million tons of grains have been diverted from the Suez Canal since the attacks started.
Public Opinion
A recent TIPP Poll from early January showed that only 46% of Americans follow the story. By party, 52% of Democrats, 49% of Republicans, and 43% of independents are aware of the issue.
Among those aware, nearly nine in ten (89%) said that they were very or somewhat concerned about the Red Sea situation, while only 9% said they were not.
Overall, 52% of respondents said they were confident that Biden’s Operation Prosperity Guardian to secure commercial shipping in the Red Sea would be successful, compared with 41% who said they weren’t confident and 8% who said they were not sure.
Victoria Coates, a national security expert, discussing the TIPP Poll results, warned in her recent article:
If the Houthi threat isn’t neutralized and this type of stoppage spreads in the coming weeks, supply chain disruptions will start to compound in a fashion that may grip the American electorate more broadly as primary voters head to the polls.
Strategic Petroleum Reserve
The ongoing Red Sea attacks threaten the stability of the Middle East and can impact the global oil supply.
Fifty years ago, in 1973, OPEC imposed an embargo on the U.S. due to its support for Israel during the Yom Kippur War. In response to this event, the U.S. established the Strategic Petroleum Reserve (SPR) in 1975 to enhance America’s national energy security during supply disruptions.
The SPR stores oil in salt caverns thousands of feet below ground and has a storage capacity of 727 million barrels of oil. The U.S. consumes 20 million gallons of oil a day. On average, the SPR has held 33 days of supply.
However, President Biden has converted the Strategic Petroleum Reserve into a Strategic Political Reserve.
We have warned numerous times that this day would come to pass, and the President’s actions lacked foresight when Biden authorized significant releases as a political move ahead of the 2022 midterm elections. Now, the Strategic Petroleum Reserve (SPR) has only 355 million barrels of oil, with only 49% of its storage capacity filled—that can fulfill just 18 days of America’s needs.
To conclude on a positive note, China is unhappy with the Red Sea situation and has asked Iran to rein in Houthi attacks on ships or risk harming business relations with Beijing. Also, the United States urged China to exert pressure on Iran to rein in the Houthis. The appeal was made during two days of meetings this week between Chinese Foreign Minister Wang Yi and U.S. National Security Adviser Jake Sullivan in Bangkok.
We hope the Red Sea situation gets better for the global economy.
TIPP Takes
Geopolitics, Geoeconomics, And More
1. Qatar Hosts And Funds Hamas, Should Pressure It To Free Hostages Says Netanyahu – Reuters
Israeli PM Benjamin Netanyahu stepped up public pressure on Qatar to bring about the release of Gaza hostages, saying the Gulf emirate should apply the leverage it has as a host and funder of the Hamas militants holding them.
The unusually blunt remarks came on the eve of what Reuters sources have described as a meeting among the Qatari prime minister and intelligence chiefs from Israel, the United States, and Egypt to discuss a potential new deal to free hostages.
2. UNRWA Claims: UN Agency Condemns Aid Halt Over Alleged Help For Hamas Attacks – BBC
The head of the UN agency for Palestinian refugees, UNRWA, has urged the countries that halted funding to reconsider their “shocking” decision.
“UNRWA is the primary humanitarian agency in Gaza, with over two million people depending on it for their sheer survival,” Philippe Lazzarini said. Eight countries, including the UK, earlier paused funding the agency over allegations that some UNRWA staff were involved in the 7 October deadly Hamas attacks on Israel.
The agency says it has opened an investigation and has sacked those employees.
3. Ukraine Says It Has Uncovered Major Arms Corruption – BBC
Ukraine’s security service says it has uncovered corruption in an arms purchase by the military worth about $40m. The SBU said five senior people in the defense ministry and at an arms supplier were being investigated.
It said the defense officials signed a contract for 100,000 mortar shells in August 2022. Payment was made in advance, with some funds transferred abroad, but no arms were ever provided.
Corruption has been a major stumbling block in Ukraine’s bid to join the European Union.
4. U.S. May Redeploy Nuclear Warheads In UK To Counter Russia Threat: Report – WION
The United States is planning to redeploy nuclear weapons in the United Kingdom to address fears of increasing threat from Russia, according to a report in the British media.
If nuclear weapons are deployed in the UK, it will be the first such step from the U.S. in the last 15 years. The warheads are expected to be three times stronger than the nuclear bomb dropped on Hiroshima in Japan during the Second World War.
5. Ukraine Says No Evidence That POWs Died In Russian Plane – A.P.
Ukrainian officials say Russia has provided no credible evidence to back its claims that their forces shot down a military plane carrying Ukrainian prisoners of war who were to be swapped for Russian POWs.
Ukraine’s Coordination Staff for the Treatment of Prisoners of War said Russian officials had “with great delay” provided it with a list of the 65 Ukrainians who Moscow said had died in the plane crash in Russia’s Belgorod region.
It said relatives of the named POWs were unable to identify their loved ones in crash-site photos provided by Russian authorities.
6. Russia’s Putin Says ‘Obvious’ Ukraine Shot Down Plane Over Belgorod – Al Jazeera
In his first comments about Wednesday’s crash, Putin said that the results of Moscow’s investigation would be published in two to three days. Still, preliminary results suggested that the missiles that hit the plane were either American or French.
“I don’t know if they did it on purpose or by mistake, but it is obvious that they did it,” Putin said in televised comments.
7. Russia Marks 80 Years Since Nazi Siege Of Leningrad Broken – A.P.
The Russian city of St. Petersburg on January 27 marked the 80th anniversary of the end of a devastating World War II siege by Nazi forces with a series of memorial events attended by President Vladimir Putin.
The Kremlin leader laid flowers at monuments to the fallen Soviet defenders. After fierce fighting, the Red Army broke the nearly two 1/2-year blockade on January 19, 1943. Historians say more than 1 million residents perished from hunger or air and artillery bombardments during the siege.
8. ‘Taiwan Independence’ An Obstacle To China-U.S. Relations, Says Beijing – Al Jazeera
Chinese Foreign Minister Wang Yi and United States National Security Adviser Jake Sullivan have held talks aimed at keeping in contact, with Wang stressing that “Taiwan independence” posed the biggest risk to Sino-U.S. ties.
The White House said, “Sullivan stressed that although the United States and China compete, both countries need to prevent it from veering into conflict or confrontation.”
9. U.S. Urges China To Push Iran To Pressure Houthis Over Red Sea Attacks – RFA
The appeal came during two days of meetings in Bangkok between the U.S. National Security Adviser Jake Sullivan and Chinese Foreign Minister Wang Yi, according to a senior Biden administration official who spoke on condition of anonymity.
The pair also discussed Russia’s invasion of Ukraine, Myanmar’s civil war, North Korea, Israel’s war with Hamas, the South China Sea, fentanyl, and artificial intelligence, the official said.
10. Clean Energy Leads Charge In China’s 2023 Economic Growth – RFA
A new analysis has shown that China’s clean energy sector saw an unprecedented surge in 2023, injecting a staggering 11.4 trillion yuan ($1.6 trillion), almost a third more than the previous year, into the nation’s economy.
This green energy boom accounted for the entire growth of investment. According to the sector analysis by the Helsinki-based Centre for Research on Energy and Clean Air (CREA), it eclipsed all other sectors in driving the country’s economic expansion.
11. China, Thailand Sign Mutual Visa Waiver Agreements, Set To Take Effect On March 1 – Reuters
Thailand and China agreed to waive visa requirements for each other’s nationals to facilitate travel and tourism between the two countries, Thai Foreign Minister said.
The mutual visa exemption takes effect on March 1, Chinese state television CCTV reported. The agreement was signed during a visit by Chinese FM Wang Yi to Thailand.
12. Never Again: Holocaust Remembered In Germany – D.W.
Numerous wreath-laying ceremonies and commemorative events were planned across Germany to mark Holocaust Remembrance Day on Saturday.
The victims of the Holocaust are remembered internationally on January 27, the day the survivors of the Nazi concentration and extermination camp Auschwitz-Birkenau were liberated by Soviet troops in 1945.
The date has been commemorated as Holocaust Remembrance Day in Germany since 1996. The United Nations declared it a day of remembrance in 2005.
13. Oil Prices Rise As Markets Weigh Middle East Tensions, Supply Forecasts – Reuters
Oil prices rose on Friday, heading for a weekly gain. Middle East tensions and oil output disruptions caused by cold weather in the U.S., the world’s biggest producer, overshadowed concerns about the health of the Chinese and global economy.
Brent crude futures rose 26 cents to $79.36 a barrel, while U.S. West Texas Intermediate crude futures (WTI) were up 20 cents to $74.28.
14. North Korea Fires Several Cruise Missiles From Its East Coast: S. Korea – Kyodo News
North Korea fired several cruise missiles off its eastern coast on Sunday, the South Korean military said, days after conducting what it said was its first test-firing of a new type of strategic cruise missile.
The report came after Pyongyang said Thursday it had test-fired a new type of strategic cruise missile, the Pulhwasal-3-31, which is believed to be capable of carrying nuclear warheads.
15. North Korea Tears Down ‘Reunification’ Arch, Sending Message To Seoul – Nikkei Asia
North Korea signaled a harder line on South Korea by tearing down a monument symbolizing reunification efforts days after leader Kim Jong Un said the idea was no longer a possibility.
Satellite imagery taken Tuesday by Airbus showed the arch in Pyongyang, which depicted two women holding a map of the Korean Peninsula, was no longer there. The monument had been seen as recently as Jan. 19.
16. ‘Stop Killing Us!’: Thousands March To Protest Against Femicide In Kenya – Al Jazeera
Thousands of people have gathered to protest in cities and towns in Kenya against the recent slayings of more than a dozen women.
The anti-femicide demonstration on Saturday was the largest event ever held in the country against sexual and gender-based violence.
17. Global Tourism To Recover To Pre-Pandemic Levels In 2024: U.N. Agency – Kyodo News
Global tourism will likely recover from the COVID-19 shock in 2024, with the Asia-Pacific region lagging behind other destinations in the number of tourist arrivals, according to an estimate by a U.N. agency.
Last year saw an estimated 1.29 billion international tourists globally. Compared with 2019 levels, tourist arrivals last year recovered to 94 percent in Europe, 96 percent in Africa, and 90 percent in the Americas, according to the U.N. World Tourism Organization.
18. Icon Of The Seas: World’s Largest Cruise Ship Sets Sail From Miami – BBC
The world’s largest cruise ship has set sail from Miami, Florida, on its maiden voyage amid concerns about its methane emissions.
The 1,197 ft long, Royal Caribbean-owned Icon of the Seas has 20 decks and can house a maximum of 7,600 passengers.
Environmentalists warn that the liquefied natural gas-powered ship will leak harmful methane into the air.
19. Donating Blood Is Good For Your Health – Yahoo Life
“Donating blood helps save the lives of patients in need of medical care, but there are also benefits to the donor,” the Red Cross says.
For people with high hemoglobin, donating blood reduces the viscosity of the blood, thus reducing the risk of heart attack and strokes. Donating blood can also help with some hereditary conditions like hemochromatosis.
Research shows that helping others, including donating blood, can positively impact mental health and well-being, including helping to reduce stress and improve mood and self-esteem.
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Republished with permission from TIPP Insights
