The Deepening Red Sea Shipping Crisis: Impacts and Outlook1 MENA FCV ECONOMIC SERIES BRIEF Issue #2 | February 2025 Summary: The Red Sea crisis has emerged as a critical global demand, lower global commodity prices, and the flashpoint of the conflict in the Middle East, upending adequate stock of inventories. global trade and maritime transport, port activity in the MENA region, and ecological balance of the Red The Red Sea has not only become a geopolitical flash- Sea. By end-2024, about a year after the onset of the point but also a site of growing environmental catastrophe. crisis, vessel traffic through the strategic Suez Canal Oil spills resulting largely from the attacks on tankers have and Bab El-Mandeb Strait—which used to carry 30 contaminated critical marine habitats, threatening biodi- percent of world container traffic—had plummeted by versity and undermining local livelihoods. The fragile three-fourths, forcing ships to detour around the Cape ecosystem of the Red Sea, home to vibrant coral reefs and of Good Hope, where navigation volumes surged by unique marine species and tourist sites, faces severe degra- over 50 percent. Meanwhile, the impact has not only dation. Additionally, fishing—a cornerstone of subsistence deepened but also spread geographically: the Strait of for coastal communities—has decreased due to safety Hormuz, the world’s most critical oil passageway and concerns and environmental damage. The crisis also resulted a chokepoint between the Arabian Gulf and the Gulf in distressed ships damaging critical undersea fiber optic of Oman, has not been immune to the spillover effects, cables, disrupting vital telecommunications infrastructure with maritime traffic dropping 15 percent as the conflict and underscoring the ongoing threat to global connectivity. casts its shadow over the region, partly due to trade being diverted to land routes. With the ceasefire between Israel and Hamas taking effect on January 19, 2025, and the Houthis stating they will Trade diversions have reshaped port trade activity along limit attacks on commercial vessels to Israel-linked ships, the the Asia-Europe corridor, altering the fortunes of key hubs. potential for reduced disruptions to global maritime trade Western Mediterranean hubs are thriving on redirected has increased. A resolution of the crisis by May 2025 trade, while their Eastern Mediterranean counterparts would result in shipping trade growth by around 6 percent face steep declines. South Asian ports, like Colombo, in Red Sea neighboring countries and around 5 percent for have seized the opportunity, capturing more regional the European Union, compared to the baseline scenario cargo. The disruption has sent shockwaves through that the crisis were to last until October 2025. In turn, the global supply chains, resulting in longer supplier delivery rebound of trade would help overall economic recovery in times, especially in Europe. Simultaneously, Gulf coun- the region. This peace dividend would be even greater if tries have adopted alternative solutions, such as a newly the crisis were to end quickly, in February 2025. established land route connecting Persian Gulf ports to Haifa, circumventing conflict zones. Persistent Conflict in the Red   The disruption of maritime transportation in the Red Sea Sea Region has driven up global shipping costs, with the sharpest increases observed on routes directly affected by the The shipping crisis in the Red Sea region has deep- hostilities. However, higher freight rates have had muted ened. Particularly around Yemen, the region remains effects on inflation so far, partly owing to subdued a complex flashpoint for conflict since the onset of the 1 The Brief is prepared under the guidance of Eric Le Borgne (Practice Manager, EMNMT) by a team comprising Željko Bogetić (Lead Economist, EMNMT), Luan Zhao (Senior Economist, EMNMT), Daria Ulybina (Economist, ETIRI), Joanne Matossian (Consultant, EMNMT), Andres Chamorro (Geographer, DECSC), Sahiti Sarva (Data Scientist, DECSC), Yahui Zhao (Consultant, EMNMT), and Weijian Li (Consultant, EMNMT). 2 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 1    Conflict events involving Houthi actors have expanded beyond Yemen to critical maritime zones in the MENA region since October 2023 A. Reported conflict events involving Houthi forces in key maritime areas B. Reported conflict events in the MENA region involving Houthi forces in the MENA region (From November 17, 2023, to December 31, 2024) 60 50 40 30 20 10 0 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Dec-24 Red Sea Gulf of Aden West Arabian Sea Northwestern Indian Ocean Source: ACLED, https://acleddata.com; World Bank staff estimates. Note: Blue dots represent the number of events, with the size of the bubble representing the number of events. Red dots indicate if there was a fatality in that location. Houthi forces include Military Forces of Yemen Houthi, Police Forces of Yemen Houthi, Government of Yemen Houthi, and the Houthi Movement – Ansar Allah. Middle East crisis in October 2023. Initially limited to traffic—have severely disrupted regional and global Yemen, the conflict involving the Houthis has expanded maritime operations. Security threats in the Red Sea to critical maritime zones, including the Red Sea, Gulf of have compelled ships on the Asia-Europe and Asia- Aden, Arabian Sea, and Northwestern Indian Ocean, North Atlantic trade lanes to be rerouted around Africa’s resulting in over 300 conflict events between October Cape of Good Hope. In the wake of these disruptions, 2023 and December 2024 (Figures 1A and 1B). Within the once-thriving maritime passage, prized for its role the Red Sea alone, Houthi forces have conducted 201 as the most expedient link between Asia and Europe, attacks on commercial vessels during this period, resulting has witnessed a precipitous drop in vessel traffic. By in 12 fatalities. In a broader context, Houthi forces have late December 2024, traffic through the strategic Suez been involved in over 2,300 conflict-related events across Canal and Bab El-Mandeb Strait has plummeted by the MENA region since October 2023, resulting in a three-fourths compared to historical norms. This reflects total of 1,467 lives lost. The expansion of Houthi activity has been accompanied by intensified arms smuggling 2 Ports in Djibouti and Somalia are key transit points for smug- into Yemen, facilitated by covert ship-to-ship transfers or gling operations, and arms are potentially being funneled smaller vessels like dhows that evade detection.2 These through these areas before reaching Yemen. Schwarz, Matthias. routes, often linked to maritime networks in Iran, persist 2021. “Arms Transfers in the Gulf of Aden. Shining the Spotlight in the Red Sea and Gulf of Aden.3 Key Yemeni ports like on Regional Dynamics.” PRIF Blog, March 24, 2021. https:// Hodeidah and Salif remain central to these smuggling blog.prif.org/2021/03/24/arms-transfers-in-the-gulf-of-aden- operations, enabling the delivery of weaponry to Houthi- shining-the-spotlight-on-regional-dynamics/. 3 United Nations Office on Drugs and Crime. 2024. “Assess- controlled areas while prompting international intercep- tion efforts.4 ment of the Response to Illicit Weapons Trafficking in the Gulf of Aden and the Red Sea.” https://www.unodc.org/documents/ CRIMJUST/Yemen_Booklet_Online.pdf. 4 Lamothe, Dan and Ryan, Missy. 2024. “U.S. attempts to stop Trade Diversion and Disruptions   arms smuggling to Yemen with limited resources.” The Wash- ington Post, March 16, 2024. https://www.washingtonpost. Attacks on commercial vessels in the Red Sea—a com/national-security/2024/03/16/houthis-weapons-smug- vital corridor for nearly a third of global container gling-yemen-iran/. MENA FCV Economic Series Brief 3 Figure 2    Attacks targeting ships in the Red Sea have disrupted commercial shipping operations since November 2023 A. AIS transit calls relative to historical average B. AIS transit calls in key areas (Number of vessels, change from historical average) (% change from historical average) Bab el-Mandeb Strait Bab el-Mandeb Strait 80 125% 60 75% 40 25% –25% 20 –75% Cape of Good Hope Cape of Good Hope 125% 100 75% 75 25% 50 –25% –75% Straight of Hormuz Straight of Hormuz 125% 110 75% 100 25% 90 80 –25% 70 –75% Suez Canal Suez Canal 125% 80 75% 60 25% 40 –25% –75% 2022-12 2023-02 2023-04 2023-06 2023-08 2023-10 2023-12 2024-02 2024-04 2024-06 2024-08 2024-10 2024-12 2023-08 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03 2024-04 2024-05 2024-06 2024-07 2024-08 2024-09 2024-10 2024-11 2024-12 Source: IMF’s PortWatch platform, https://portwatch.imf.org; World Bank staff estimates. Note: Figure A separates transit calls for each area and includes a black line to indicate the historical average for each respective area. The vertical dotted lines mark the beginning of key periods of interest, with the Middle East conflict starting on October 7, 2023, and the Red Sea crisis on November 17, 2023. The historical average refers to the AIS transit call average recorded prior to the Red Sea crisis, spanning from January 2022 to October 2023. significant deterioration compared to a fifty percent baseline of January to September 2023 (Figure 3A). This decline documented in the May 2024 issue of this has resulted in corresponding increases in travel times of Brief series when we first analyzed the early crisis up to 45 percent for cargo and 28 percent for tankers, impact.5 The alternative Cape of Good Hope passage signaling a significant shift in global maritime logistics has seen a surge in activity, with navigation volumes (Figure 3B). increasing by over 50 percent, but this also reflects deterioration from the earlier peak of 100 percent in The Red Sea shipping crisis has profoundly disrupted March 2024. Moreover, the number and frequency the global supply chains. The World Bank’s Global of vessels passing around the Cape of Good Hope Supply Chain Stress Index, a measure of the delayed has become much more volatile in recent months, also container shipping capacity that was held up due to reflecting the broader disruption to supply chains linking port congestion or closures, rose to 2.3 million TEUs in Asia and Europe and the Americas (Figure 2). Mean- December 2024—more than double the levels recorded while, the Strait of Hormuz, the world’s most critical oil in December 2023 and similar to the peak seen in passageway and a chokepoint between the Arabian March 2022 during severe container traffic congestion Gulf and the Gulf of Oman, has not been immune to the amid the COVID-19 pandemic (Figure 4A). Over the spillover effects, experiencing a 15 percent reduction in past year, Eastern Mediterranean and Persian Gulf ports maritime traffic due to its proximity to the conflict zone. have accounted for 26 percent of delayed container This is an underestimate of the overall diversion of oil shipping capacity, up from 8 percent a year ago. Mean- transport from this area because of the newly opened while, China’s share has dropped to 9 percent from 38 land route from Saudi ports to Haifa. percent (Figures 4B and 4C). Trade diversion around the Cape of Good Hope led to a sharp increase in the travel distances and times of vessels that once frequented the Red Sea. By October 5 World Bank. 2024. Dire Strait: The Far-Reaching Impact of 2024, travel distances for cargo ships and tankers that the Red Sea Shipping Crisis. https://documents1.worldbank. previously passed through the Red Sea had risen by 48 org/curated/en/099414105062418860/pdf/IDU1a149 and 38 percent, respectively, compared to the pre-conflict 1aa617394148a91856c1eaa57a28f15b.pdf. 4 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 3    Travel distances and times for Red Sea vessels spiked in 2024 compared to their pre-conflict baselines A. Distance traveled by Red Sea vessels B. Time traveled by Red Sea vessels (% change from Jan–Sep 2023 baseline) (% change from Jan–Sep 2023 baseline) 60% 60% 40% 40% 20% 20% 0% 0% 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03 2024-04 2024-05 2024-06 2024-07 2024-08 2024-09 2024-10 2023-09 2023-10 2023-11 2023-12 2024-01 2024-02 2024-03 2024-04 2024-05 2024-06 2024-07 2024-08 2024-09 2024-10 Vessel type Vessel type Cargo Tanker Cargo Tanker Source: UN Global Platform, https://unstats.un.org/wiki/display/AIS/AIS+Handbook+Outline; World Bank staff estimates. Figure 4    Sources of supply chain stress have shifted toward the Middle East and Mediterranean regions A. Global Supply Chain Stress Index (million TEUs) 2.5 Middle East Conflict Red Sea Global Supply Chain Stress Index (million TEUs) Shipping Crisis 2.0 1.5 1.0 0.5 0.0 2020/02 2020/04 2020/06 2020/08 2020/10 2020/12 2021/02 2021/04 2021/06 2021/08 2021/10 2021/12 2022/02 2022/04 2022/06 2022/08 2022/10 2022/12 2023/02 2023/04 2023/06 2023/08 2023/10 2023/12 2024/02 2024/04 2024/06 2024/08 2024/10 2024/12 B. Top 10 regional contributors to Global Supply Chain Stress C. Top 10 regional contributors to Global Supply Chain Stress (22.11.19–23.11.19) (23.11.19–2024.11.19) West Med Europe 4.6% Caribbean Sea & South America West Coast 4.6% Australasia 4.7% Central America 5.7% Indian S&E Africa/ Subcontinent North America Indian Ocean 4.0% East Coast 7.2% 4.8% North America South East Asia North Asia West Coast 7.3% 23.6% 6.6% China Sea West Med East Med 37.7% Europe 7.7% 7.2% Persian Gulf 8.5% North America East Med East Coast 7.6% China Sea 8.5% 17.7% Nort America West Coast 7.8% South East Asia 15.0% North Sea 9.1% Source: Global Supply Chain Stress Index (GSCSl) of the World Bank Group; World Bank staff estimates. Note: In Figure A, the GSCSI measures the delayed vessel capacity and timing for ports, focusing exclusively on Panamax-class vessels or larger on main trade routes. It serves as a proxy for the cumulative supply chain stress in specific regions. TEU means Twenty-foot equivalent unit, commonly used to express shipping cargo’s weight. For Figures B and C, the pie charts show the top 10 contributions to global stress from ports in different regions. MENA FCV Economic Series Brief 5 Figure 5    Supplier delivery times have notably increased in Europe since the start of the Red Sea crisis 20% (Inverted, November 2023 to October 2024 vs. November 2022 to October 2023, seasonally adjusted) 15% 10% 5% 0% –5% –10% –15% Israel Germany UK Netherlands Greece Spain Austria Czechia Italy Poland Ireland Romania Russia Türkiye Kazakhstan France Switzerland Australia Myanmar New Zealand Taiwan Vietnam Malaysia Indonesia Philippines China Korea Thailand Japan Brazil Colombia Mexico US Canada India Middle East and Europe and Central Asia East Asia Pacific Latin South North Africa America North Asia America Source: S&P Global; Haver Analytics; World Bank staff estimates. Note: The changes in the PMI suppliers' delivery times index were calculated as the ratio of the inverted suppliers' delivery times index from November 2023 to October 2024 over the inverted suppliers' delivery times index from November 2022 to October 2023, minus one. The PMI suppliers' delivery times index, which ranges from 0 to 100, is based on survey responses to the question: "Are your suppliers' delivery times slower, faster, or unchanged on average compared to one month ago?" The index is calculated as follows: (percentage of respondents answering 'Faster' * 1) + (percentage answering 'Same' * 0.5) + (percentage answering 'Slower' * 0). Disruptions in the Red Sea shipping route have caused and October 2024, nearly all of the top 20 ports across significantly longer supplier delivery times, especially Red Sea and Gulf countries recorded notable drops in in Europe. Purchasing Managers’ Indices for suppliers’ both imports and exports, with an average trade volume delivery times have increased in 25 out of 35 surveyed decrease of 8 percent compared to their pre-crisis levels countries globally between November 2023 and (Figure 6B). Egypt reported an estimated $7 billion loss October 2024, compared to the pre-crisis baseline of in Suez Canal revenues for 2024, representing approxi- November 2022 to October 2023. The deterioration of mately 5 percent of its GDP.6 Nevertheless, a few ports in supplier delivery times has been particularly pronounced the UAE, Egypt, and Saudi Arabia have bucked the trend, in Europe and some of the Asian countries (Figure 5). showing positive growth. Their locations in the Mediterra- nean and the Gulf, away from Houthi-controlled Yemeni territory, likely enabled them to benefit from trade diversion Shift in Port Trade Activity and   from ports located near the conflict’s center and maintain New Land Routes uninterrupted trade routes to Europe and other markets. The conflict in the Middle East and the ensuing Red Sea Trade shifts have reshaped port activity along the shipping crisis have contributed to a sharp decline in Asia- Europe trade route, benefiting some ports while port activity, shipping, and trade across Red Sea and disadvantaging others (Figure 7A and 7B). Western Gulf countries. Since November 2023, the majority of Mediterranean ports like Barcelona, Valencia, Algeciras, Red Sea and Gulf ports and their associated economies and Tanger Med have seen increased transshipment and have registered reduced sea trade volumes compared larger vessel calls as trade reroutes around the Cape of to the baseline period of November 2022 to October 2023. Jordan and Oman saw the steepest declines in 6 Reuters. 2024. “Regional challenges cost Egypt around shipping exports, with reductions of 38 percent and $7 bln of Suez Canal revenues in 2024, Sisi says.” December 28 percent, respectively, while Jordan and Qatar expe- 26, 2024. https://www.reuters.com/world/africa/regional- rienced the largest declines in shipping imports, at 50 challenges-cost-egypt-around-7-bln-suez-canal-revenues-2024- and 27 percent (Figure 6A). Between November 2023 sisi-says-2024-12-26/. 6 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 6    Trade activity has diminished at most Red Sea and Gulf ports since November 2023 A. Change of shipping trade in countries near the Red Sea B. Percent change in shipping trade volume during Red Sea crisis from (%) baseline (top 20 ports) 60% 30% 40% 20% 20% 10% 0% 0% –20% –10% –40% –20% –60% –30% Sitrah Damietta El Dekheila Sidi Kerir Shuaiba Port of Sohar Salalah Doha-Umm Said Ras Laffan Dammam Jeddah Juaymah Jubail King Fahd Port Ras Tanura Al Fujayrah Jabal Az Zannah-Ruways Jebel Ali Khalifa Port Mina Saqr Djibouti Egypt Jordan Saudi Arabia Yemen Qatar Bahrain United Arab Emirates Kuwait Oman Imports Exports BHR EGY KWTOMN QAT SAU UAE Source: IMF’s PortWatch platform, https://portwatch.imf.org; World Bank staff estimates. Note: The percentage change in shipping trade is estimated based on the change in monthly average import or export volumes in these countries between the pre-crisis period (November 2022 to October 2023) and the post-crisis period (November 2023 to October 2024). For abbreviation, BHR=Bahrain, EGY=Egypt, KWT=Kuwait, Oman=OMN, QAT=Qatar, SAU=Saudi Arabia, UAE=United Arab Emirates. Good Hope, bypassing the Suez Canal.7 For instance, increased vessel activity at Saudi Arabia’s Dammam port the volume of goods moving through Spanish ports rose by about 15 percent compared to the baseline period by 6 percent in 2024 after they became the first point of of January 1 to November 16, 2023 (Figure  8B), as call in Europe for many companies avoiding attacks by cargo previously routed through Yanbu, a port on Saudi Houthi militia on shipping in the Red Sea and sending their Arabia’s western coast, is now being redirected to goods around southern Africa.8 In contrast, eastern Medi- Dammam (Figure 8C). terranean ports such as Piraeus, Marsaxlokk, and Port Said have faced declines in large vessel calls and reduced Global trade volumes have accelerated, however, transshipment opportunities due to diminished Suez Canal despite a decline in maritime trade in 2024, suggesting traffic. In  South Asia, Colombo has capitalized on Red a broad-based shift toward trade diversion rather Sea trade disruptions, capturing more Middle Eastern and than trade reduction. From November 2023 to Indian subcontinental cargo and increasing vessel calls, October  2024, global port visits and seaborne trade while Hambantota International Port adds capacity. Simi- larly, hubs in the Malacca Strait—Singapore, Port Klang, 7 Panaro, Alessandro. 2024. “Euro-Mediterranean Ports and and Tanjung Pelepas—have managed higher rehandling the Impacts of the Red Sea Crisis: Insights and Key Data.” The demands, causing localized congestion, particularly in Italian Institute for International Political Studies, November 24, Singapore.9 2024. https://www.ispionline.it/en/publication/euro-medi​ terranean-ports-and-the-impacts-of-the-red-sea-crisis-insights-and​ In a new development, the scope and duration of the -key-data-191220. 8 Reuters. 2025. “Spanish port traffic surges due to Red crisis have prompted intermodal transport adjustment Sea crisis”. January 31, 2025. https://www.reuters. from maritime shipping towards land transport of com/world/europe/spanish-port-traffic-surges-due-red-sea- cargo across the Arabian Peninsula (Figure 8A). Since crisis-2025-01-31/. December 2023, attacks on Red Sea shipping have 9 Lloyd’s List. 2024. “Red Sea reroutings uproot transshipment spurred the development of an alternative “land bridge” trends.” Kuehne + Nagel, September 19, 2024. https:// to carry cargo by trucks through Saudi Arabia to reach mykn.kuehne-nagel.com/news/article/red-sea-reroutings- destinations in Israel and Egypt and beyond. This shift has uproot-traditional-transhi-19-Sep-2024. MENA FCV Economic Series Brief 7 Figure 7    Trade shifts have reshaped port activity along the Asia-Europe trade route A. Shipping density, September 2023 B. Shipping density, September 2024 Source: World Bank. AIS Data accessed through the UN AIS Task Team (UN-CEBD), originally acquired from Spire. We grouped AIS messages into a hexagonal grid and counted the number of unique vessels traveling in each month. Figure 8    The Red Sea crisis led the GCC to shift from maritime shipping towards a land route connecting Gulf ports to Haifa A. Land bridge routes B. Monthly trade volumes in Port Dammam (metric tons) 3.5 3 2.5 2 Millions 1.5 1 0.5 0 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Dec-24 Imports Exports Source: Evolution Time Critical, https://www.evolution-timecritical.com/insights/red-sea-update-middle-east-land-bridge-provides-short-term- solution-to-extended-transit-times/; IMF’s PortWatch platform, https://portwatch.imf.org; World Bank staff estimates. volumes dropped by 5 percent for imports and 4 percent Environmental Damage, Disrupted   for exports compared to the November 2022 to October Fishing, and Internet Outages 2023 baseline, partly due to the Red Sea shipping crisis (Figures 9A and 9B). However, global trade volumes have Houthi attacks on ships in the region have caused signif- actually increased during this period, likely suggesting icant environmental damage from oil spills and the that businesses have adapted by diversifying logistics potential release of hazardous cargo such as fertilizer. strategies and increasingly relying on alternative transport Since March 2024, dozens of vessels carrying fertilizer, modes such as air, rail, and land. heavy fuel oil, and marine diesel have been attacked and 8 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 9    Despite declining maritime trade, total trade remained stable, indicating a shift to trade diversion A. World seaborne trade (unit: million tons) B. Global trade volumes (Index, 2021=100) 36 108 Red Sea 35 Shipping Crisis 106 34 104 33 32 102 31 Mid-East Conflict Mid-East 100 Conflict Red Sea 30 Shipping 98 Crisis 29 28 96 2022/01 2022/03 2022/05 2022/07 2022/09 2022/11 2023/01 2023/03 2023/05 2023/07 2023/09 2023/11 2024/01 2024/03 2024/05 2024/07 2024/09 2024/11 2022/01 2022/03 2022/05 2022/07 2022/09 2022/11 2023/01 2023/03 2023/05 2023/07 2023/09 2023/11 2024/01 2024/03 2024/05 2024/07 2024/09 2024/11 Import Export Import Export Source: IMF’s PortWatch platform, https://portwatch.imf.org; CPB Netherlands Bureau for Economic Policy Analysis, https://www.cpb. nl/en/world-trade-monitor-november-2024; World Bank staff estimates. Note: The RHS figure uses the monthly average total world trade volume in 2021 as the base. sunk by the Houthis.10 Satellite imagery reveals a dramatic region’s coral reefs and desalination plants, which are rise in oil slicks in the Red Sea since the onset of the critical for supplying drinking water to millions, including crisis, with the number of slicks surging by 113.8 percent cities like Jeddah in Saudi Arabia that rely almost entirely and the area they cover expanding by 115.4 percent on the desalination network for water safety.12 compared to the pre-conflict baseline of November 2022 to November 2023 (Figures 10A and 10B). This is partic- Attacks on ships have also caused damage to commu- ularly striking given that transit calls through the critical nication cables, disrupting global internet connec- chokepoints of the Suez Canal and Bab el Mandeb have tivity. In February 2024, the British cargo ship Rubymar, decreased by 46 and 56 percent, respectively, during the same period. To put this into perspective, the area affected by oil slicks since the conflict began—more than 8,000 10 Dozens of vessels, including tankers and carriers, have been targeted, with the most severely impacted being the sunken km2—is equivalent to approximately 70 percent of Qatar’s Rubymar (March 2024), the Tutor (June 2024), the Chios Lion total land area and over ten times the size of Bahrain. (July 2024), and the Sounion oil tanker (August 2024). The Rubymar poses a particular high risk as its oil and fertilizer Leaked fuel and fertilizer have harmed marine cargo remain trapped inside, threatening future leaks. ecosystems, severely disrupting fishing activity in the 11 Agence France-Presse. 2024. “Sinking of Rubymar in Red region and threatening desalination plants critical Sea poses grave environmental risks, experts warn.” The for supplying drinking water. The Yemeni government Guardian, March 5, 2024. https://www.theguardian.com/ estimated that the combined threat of fuel and fertilizer world/2024/mar/05/sinking-of-rubymar-in-red-sea-poses- from ships attacked could affect up to 500,000 Yemeni grave-environmental-risks-experts-warn. 12 Maimann, Kevin. 2024. “Cargo ship hit by Houthis sinks, coastal residents who rely on fishing for their livelihoods.11 spilling oil and fertilizer into Red Sea.” CBC News, March 3, Since October 2023, there has been a decline in fishing 2024. https://www.cbc.ca/news/world/houthi-attack-oil​ activity in the Red Sea and surrounding waters, most -spill-1.7132518#:~:text=A%20vibrant%20fishing%20indus​ notably along the western coast of Saudi Arabia and try%2C%20coral%20reefs%2C%20desalination%20plants,sh​ off the coast of Somalia (Figures 11A, 11B, and 11C). ip%20attacked%20by%20Yemen%27s%20Houthi%20rebels​ The spread of oil and fertilizer leaks also endangers the %2C%20officials%20say. MENA FCV Economic Series Brief 9 Figure 10    Despite a massive drop in traffic, satellite imagery shows a significant increase in oil slicks in the Red Sea following the onset of Houthi attacks on vessels A. Large oil slicks (40 km2–100 + km2) from November 17, 2022, B. Large oil slicks (40 km2–100 + km2) from November 17, 2023, to November 16, 2023 to November 16, 2024 Source: SkyTruth satellite imaging platform, https://cerulean.skytruth.org/?area=40_Infinity&eez=0&endDate=2023-11-16&iho=0&lat=2 1.751474&lng=50.231761&machine_confidence=0.7&mpa=1&sources=&startDate=2022-11-16&zoom=3.771183. Note: These oil slicks are the result of various factors, not solely the Houthi attacks. Nearby vessels have also been identified in connection with these slicks. Figure 11    The Red Sea crisis has disrupted fishing activity in the region A. Fishing hours in the Red Sea Average fishing hours during 2022.12-2023.11 7.500 were 4,010 hours per month Red Sea Shipping Crisis 300 Fishing Hours 6MMA Fishing hours 6MMA YoY Average fishing hours during 250 2023.12-2024.11 were 5.000 3387 hours per month 200 150 2.500 100 50 0 0 –50 –2.500 –100 2012/13 2021/7 2021/11 2022/3 2022/7 2022/11 2023/3 2023/7 2023/11 2024/3 2024/7 2024/11 (continued B. Fishing activity in the Red Sea from November 2022 to November 2023 C. Fishing activity in the Red Sea from November 2023 on next to November 2024page) targeted by Houthi forces, likely severed four of over 13 Folk, Zachary. 2024. “Four Fiber Optic Cables Damaged In 15  underwater data cables in the Red Sea when its Red Sea: Here’s What We Know.” Forbes, March 4, 2024. anchor dragged along the seafloor. This disruption cut https://www.forbes.com/sites/zacharyfolk/2024/03/04/ four-fiber-optic-cables-damaged-in-red-sea-heres-what-we-know/. vital data and financial communication links between 14 Moon, Jenna. 2024. “Severed Red Sea data cables disrupt Asia, Europe, and the Middle East, forcing the rerouting global internet connections.” Semafor, March 5, 2024. of approximately 25 percent of internet traffic across https://www.semafor.com/article/03/05/2024/severed- these regions (Figure 12).13 14 red-sea-data-cables-disrupt-global-internet-connections. 150 2.500 100 50 10 0 The Deepening Red Sea Shipping Crisis: Impacts and Outlook 0 –50 –2.500 –100 2012/13 2021/7 2021/11 2022/3 2022/7 2022/11 2023/3 2023/7 2023/11 2024/3 2024/7 2024/11 Figure 11    The Red Sea crisis has disrupted fishing activity in the region (continued) B. Fishing activity in the Red Sea from November 2022 to November 2023 C. Fishing activity in the Red Sea from November 2023 to November 2024 Source: Global Fish Watch, https://globalfishingwatch.org/map. Note: In Figure A, “6MMA” refers to a six-month moving average. Figures B and C use brightness to depict fishing intensity, with brighter areas indicating greater activity. Figure 12    The recent Houthi attacks have likely disrupted communication cables in the Red Sea Source: Financial Times, https://www.ft.com/content/bf17fc55-8624-435b-b7dd-bc662a887ba0. MENA FCV Economic Series Brief 11 Impact on freight rates and   up a small share of total input costs and are often locked in inflation through long-term contracts, shielding consumer goods from spot market volatility (Figure 15). Additionally, weak global The disruption of maritime transportation in the Red Sea demand and adequate inventory levels—reported by firms has driven up global shipping costs, with the sharpest amid subdued global activity—have further dampened the increases observed on routes directly affected by the inflationary impact, consistent with findings by Alessandria hostilities. The Drewry World Container Index, a critical et al. (2023) and Lafrogne-Joussier et al. (2022). gauge of global shipping costs, remains 141 percent higher than pre-crisis levels as of November 2024. The impact is more pronounced along routes passing through  Outlook the Red Sea, where shipping rates from Shanghai to Rotterdam and Genoa are, on average, 230 percent With the ceasefire between Israel and Hamas taking higher than at the end of 2023. In contrast, other routes effect on January 19, 2025, and the Houthis stating they have experienced limited cost increases. This trend is will limit attacks on commercial vessels to Israel-linked echoed by the Freightos Baltic Index (FBX), with freight ships, the potential for reduced disruptions to global rates from China to the Mediterranean experiencing the maritime trade has increased. A ceasefire between Israel largest increase after the crisis (Figures 13A and 13B). and Hamas took effect on January 19, 2025, unfolding in three phases over several weeks.15 With the ceasefire The rise in shipping costs, however, has had muted effects on inflation so far. Indeed, consumer prices remain 15Al Jazeera. 2025. “What do we know about the Israel- unaffected, due in part to the crisis so far sparing the oil Hamas ceasefire deal in Gaza?” January 15, 2025. https:// sector and commodity prices (Figures 14A to 14F). Infla- www.aljazeera.com/news/2025/1/15/what-do-we-know- tionary effects are contained as maritime trade costs make about-the-israel-gaza-ceasefire-deal. Figure 13    The crisis has led to increased freight rates, especially along routes traversing the Red Sea A. World Container Index (WCI), container freight (USD/FEU) B. Freightos Baltic Index (USD/FEU) Red Sea Shipping 9,000 7,000 Crisis 8,000 Red Sea 6,000 Shipping Mid-East Mid-East Crisis Conflict 7,000 Conflict 5,000 6,000 4,000 5,000 3,000 4,000 2,000 3,000 1,000 2,000 0 1,000 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 0 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 Jul-24 Aug-24 Sep-24 Oct-24 Nov-24 Freightos Baltic Index Mainland China to Europe Mainland China to US West Coast to US West Coast Mainland China WCI Comprehensive Shanghai to Rotterdam Europe to Mainland China Mainland China to Rotterdam to Shanghai Shanghai to Genoa Mediterranean Sea to Mediterranean Sea Shanghai to Los Angeles Los Angeles to Shanghai Mainland China Source: World Container Index assessed by Drewry; Freightos Baltic Index. Note: FEU stands for forty-foot equivalent unit. 12 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 14    Global inflationary pressures remain contained A. CPI (yoy %), major countries B. CPI (yoy %), MENA countries 14 45 300 Ukraine Middle East Ukraine Middle East Red Sea Red Sea War Conflict 40 War Conflict Shipping 12 Shipping Crisis Crisis 35 250 10 30 200 8 25 20 6 150 15 4 10 100 5 2 0 50 0 –5 –2 –10 0 2020/03 2020/06 2020/09 2020/12 2021/03 2021/06 2021/09 2021/12 2022/03 2022/06 2022/09 2022/12 2023/03 2023/06 2023/09 2023/12 2024/03 2024/06 2024/09 2024/12 2020/03 2020/06 2020/09 2020/12 2021/03 2021/06 2021/09 2021/12 2022/03 2022/06 2022/09 2022/12 2023/03 2023/06 2023/09 2023/12 2024/03 2024/06 2024/09 2024/12 China European Union France Germany Italy Bahrain Egypt (RHS) Oman Japan Spain United Kingdom United States Lebanon Qatar Saudi Arabia C. Commodity Import Price Index, main countries D. Commodity Import Price Index, MENA countries (June 2012 = 100) (June 2012 = 100) 160 150 Middle East Middle East Red Sea Red Sea Conflict Conflict Shipping 150 Shipping Crisis 140 Crisis 140 130 130 120 120 110 110 100 100 90 90 80 80 1/1/22 3/1/22 5/1/22 7/1/22 9/1/22 11/1/22 1/1/23 3/1/23 5/1/23 7/1/23 9/1/23 11/1/23 1/1/24 3/1/24 5/1/24 7/1/24 1/1/22 3/1/22 5/1/22 7/1/22 9/1/22 11/1/22 1/1/23 3/1/23 5/1/23 7/1/23 9/1/23 11/1/23 1/1/24 3/1/24 5/1/24 7/1/24 China France Germany Italy Egypt Yemen Djibouti Syria Japan Netherlands Spain United Kingdom Saudi Arabia Turkey Iraq UAE United States E. Crude Oil Spot Price F. FAO Food Price Index (continued on next page) (USD/barrel) (2014 to 2016 = 100) 140 250 Middle East Ukraine Middle East Red Sea Ukraine Red Sea War Conflict Shipping 230 War Conflict Shipping 120 Crisis Crisis 210 100 190 170 100 90 90 80 80 MENA FCV Economic Series Brief 13 1/1/22 3/1/22 5/1/22 7/1/22 9/1/22 11/1/22 1/1/23 3/1/23 5/1/23 7/1/23 9/1/23 11/1/23 1/1/24 3/1/24 5/1/24 7/1/24 1/1/22 3/1/22 5/1/22 7/1/22 9/1/22 11/1/22 1/1/23 3/1/23 5/1/23 7/1/23 9/1/23 11/1/23 1/1/24 3/1/24 5/1/24 7/1/24 China France Germany Italy Egypt Yemen Djibouti Syria Japan Netherlands Spain United Kingdom Saudi Arabia Turkey Iraq UAE Figure United 14     States Global inflationary pressures remain contained (continued) E. Crude Oil Spot Price F. FAO Food Price Index (USD/barrel) (2014 to 2016 = 100) 140 250 Middle East Ukraine Middle East Red Sea Ukraine Red Sea War Conflict Shipping 230 War Conflict Shipping 120 Crisis Crisis 210 100 190 170 80 150 60 130 40 110 90 20 70 0 50 2020/01 2020/03 2020/05 2020/07 2020/09 2020/11 2021/01 2021/03 2021/05 2021/07 2021/09 2021/11 2022/01 2022/03 2022/05 2022/07 2022/09 2022/11 2023/01 2023/03 2023/05 2023/07 2023/09 2023/11 2024/01 2024/03 2024/05 2024/07 2024/09 2024/11 2025/01 2020/03 2020/06 2020/09 2020/12 2021/03 2021/06 2021/09 2021/12 2022/03 2022/06 2022/09 2022/12 2023/03 2023/06 2023/09 2023/12 2024/03 2024/06 2024/09 2024/12 West Texas Intermediate (WTI) Dated Brent (DTD) Food Meat Dairy Crude Oil Crude Oil Crude Oil Crude Oil Cereals Oil Sugar (Daqing China) (Oman) (India Niemi Nas) (OPEC Basket) Source: CEIC database; FAO of the UN; IMF indicators; World Bank staff estimates. Note: The FAO Food Price Index uses the average prices from 2014 to 2016 as its base, with weights from this period applied to estimate the index. Commodity Import Price Indicators are calculated by weighting individual commodities based on their ratios of total imports. Figure 15    Ratio of transport expenditure to Free on Board (FOB) value 18% 17% 16% 14% 13% 12% 11% 11% 11% 11% 11% 10% 10% 10% 9% 9% 8% 6% 6% 4% 2% 0% World Africa Americas Asia Europe Oceania 2016 2021 Source: UNCTAD, https://unctadstat.unctad.org/datacentre/dataviewer/US.TransportCosts. Note: Transportation cost is estimated as the average differences between Cost Insurance and Freight (CIF) value and Free on Board (FOB) value. FOB is used to estimate the pure cost of imported goods. 14 The Deepening Red Sea Shipping Crisis: Impacts and Outlook Figure 16    The resolution of the Red Sea Shipping Crisis would yield a substantial peace dividend A. Shipping imports, compared to the baseline scenario B. Shipping exports, compared to the baseline scenario (percentage change; November 2024 to October 2025) (percentage change; November 2024 to October 2025) 9% 20% 8% 18% 7% 16% 14% 6% 12% 5% 10% 4% 8% 3% 6% 2% 4% 1% 2% 0% 0% Gradual recovery Rapid recovery Gradual recovery Rapid recovery Red Sea MENA countries MENA European Union East Asia Pacific Latin America North America South Asia Sub-Saharan Africa Source: IMF’s PortWatch platform, https://portwatch.imf.org; CEIC database; World Bank staff estimates. Note: Red Sea MENA countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Djibouti, Egypt, and Yemen. Each region's shipping imports and exports represent the sum of imports and exports across all countries within the region. In the baseline scenario, the crisis is assumed to continue until October 2025, with year-on-year shipping trade growth from December 2024 to October 2025 mirroring those observed during the same period from December 2023 to October 2024. The gradual recovery scenario assumes the crisis will last until May 2025, after which shipping conditions will return to pre-crisis levels. The rapid recovery scenario assumes the crisis ends entirely, with shipping conditions returning to pre-crisis levels from February 2025 onward. in place, Yemen’s Houthis have announced they will limit 16 Al Jazeera. 2025. “Yemen’s Houthis to only target Israel- their attacks to Israel-linked ships.16 In response, British and linked ships following Gaza ceasefire.” January 20, 2025. American vessels are steadily returning to the Red Sea.17 https://www.aljazeera.com/news/2025/1/20/yemens​ However, given the financial gains the Houthis have made -houthis-to-only-target-israel-linked-ships-following-gaza-ceasefi​ by extracting payments from shipowners in exchange for safe re#:~:text=Yemen%E2%80%99s%20Houthis%20will%20 passage, concerns remain that they could continue  lever- limit​%20their%20attacks%20on%20commercial,world%20 aging maritime disruptions as a long-term revenue source.18 maritime​%20trade%20for%20more%20than%20a%20year. 17 The New Arab. 2025. “UK, US ships return to the Red Sea as Houthi ceasefire holds.” January 29, 2025. https://www​ The peace dividend scenario was motivated by the hope .newarab.com/news/uk-us-ships-return-red-sea-houthi-ceasefire​ of durable peace in the region on the heels of the cease- -holds. fire agreement and the resumption of normal traffic 18 The Economist. 2025. “Houthi Inc: the pirates who weap- in the Red Sea. More specifically, three scenarios are onized globalization.” January 16, 2025. https://www. constructed to assess its potential impact on shipping trade: economist.com/leaders/2025/01/16/houthi-inc-the-pirates- who-weaponised-globalisation. 19 From December 2024 to April 2025, the year-on-year (yoy) • In the baseline scenario, the crisis is assumed to last until October 2025, with year-on-year shipping trade growth rates are assumed to match those observed during the growth from December 2024 to October 2025 same period from December 2023 to April 2024. From May 2025 to October 2025, the yoy growth rates are assumed mirroring those observed during the same period to equal the average of the yoy growth rates for the corre- from December 2023 to October 2024. sponding months in 2023, 2022, and 2021 (i.e., May 2023 to October 2023, May 2022 to October 2022, and May • Gradual recovery scenario assumes the crisis lasts 2021 to October 2021). until May 2025, after which shipping trade growth returns to the pre-crisis levels.19 MENA FCV Economic Series Brief 15 • Rapid recovery scenario assumes the crisis ends shipping imports are estimated to increase by 2.1 percent quickly in February 2025.20 in Red Sea MENA countries and 8.2 percent in the EU, while shipping exports would surge by 17.4 percent in The resolution of the Red Sea shipping crisis would Red Sea MENA countries and 10.2 percent in the EU. generate visible peace dividends for shipping trade These significant improvements in shipping trade highlight in both MENA and other regions, compared to the the far-reaching benefits of an early resolution to the ship- baseline scenario in which the crisis persists until ping crisis, driving stronger recovery in shipping trade October 2025. If the crisis were to end in May 2025, across regions (Figures 16A and 16B). shipping imports are estimated to increase by 1.6 percent in Red Sea MENA countries21 and 4.9 percent in the European Union (EU), compared to the baseline in which the crisis lasts until October 2025. Shipping exports would also see gains, increasing by 10.3 percent in Red 20 From December 2024 to October 2025, the yoy growth rates are assumed to equal the average of the yoy growth Sea MENA countries and 5.1 percent in the EU, demon- rates for the corresponding months in 2023, 2022, and 2021 strating the potential for meaningful improvements in ship- (i.e., December 2022 to October 2023, December 2021 to ping trade recovery under gradual recovery conditions. October 2022, and December 2020 to October 2021). 21 Red Sea MENA countries include Bahrain, Kuwait, Oman, The peace dividends would be even greater if the crisis Qatar, Saudi Arabia, the United Arab Emirates, Djibouti, Egypt, were to end quickly in February 2025. In this scenario, and Yemen. 16 The Deepening Red Sea Shipping Crisis: Impacts and Outlook References   Panaro, Alessandro. 2024. “Euro-Mediterranean Ports and the Impacts of the Red Sea Crisis: Insights and Key Agence France-Presse. 2024. “Sinking of Rubymar in Data.” ISPI, November 24, 2024. https://www.ispio​ Red Sea poses grave environmental risks, experts warn.” nline.it/en/publication/euro-mediterranean-ports-and​ The Guardian, March 5, 2024. https://www.theguar​ -the-impacts-of-the-red-sea-crisis-insights-and-key-data-19​ dian.com/world/2024/mar/05/sinking-of-rubymar-in​ 1220. -red-sea-poses-grave-environmental-risks-experts-warn. Reuters. 2024. “Regional challenges cost Egypt around Al Jazeera. 2025. “What do we know about the Israel- $7 bln of Suez Canal revenues in 2024, Sisi says.” Hamas ceasefire deal in Gaza?” January 15, 2025. December 26, 2024. https://www.reuters.com/ https://www.aljazeera.com/news/2025/1/15/wh​ world/africa/regional-challenges-cost-egypt-around-7- at-do-we-know-about-the-israel-gaza-ceasefire-deal. bln-suez-canal-revenues-2024-sisi-says-2024-12-26/. Al Jazeera. 2025. “Yemen’s Houthis to only target Reuters. 2025. “Spanish port traffic surges due to Red Israel-linked ships following Gaza ceasefire.” January Sea crisis”. January 31, 2025. https://www.reuters. 20, 2025. https://www.aljazeera.com/news/2025​ com/world/europe/spanish-port-traffic-surges-due-red- /1/20/yemens-houthis-to-only-target-israel-linked-ships​ sea-crisis-2025-01-31/. -following-gaza-ceasefire#:~:text=Yemen%E2%80%99s​ %20Houthis%20will%20limit%20their%20attacks%20​ Schwarz, Matthias. 2021. “Arms Transfers in the Gulf on%20commercial,world%20maritime%20trade%20for​ of Aden. Shining the Spotlight on Regional Dynamics.” %20more%20than%20a%20year. PRIF Blog, March 24, 2021. https://blog.prif.org/20​ 21/03/24/arms-transfers-in-the-gulf-of-aden-shining-the​ Folk, Zachary. 2024. “Four Fiber Optic Cables Damaged -spotlight-on-regional-dynamics/. In Red Sea: Here’s What We Know.” Forbes, March 4, 2024. https://www.forbes.com/sites/zacharyfolk/20​ The Economist. 2025. “Houthi Inc: the pirates who weap- 24/03/04/four-fiber-optic-cables-damaged-in-red-sea​ onized globalization.” January 16, 2025. https://www​ -heres-what-we-know/. .economist.com/leaders/2025/01/16/houthi-inc-the​ -pirates-who-weaponised-globalisation. Lamothe, Dan and Ryan, Missy. 2024. “U.S. attempts to stop arms smuggling to Yemen with limited resources.” The New Arab. 2025. “UK, US ships return to the Red The Washingron Post, March 16, 2024. https://www​ Sea as Houthi ceasefire holds.” January 29, 2025. .washingtonpost.com/national-security/2024/03/16​ https://www.newarab.com/news/uk-us-ships-return-red​ /houthis-weapons-smuggling-yemen-iran/. -sea-houthi-ceasefire-holds. Lloyd’s List. 2024. “Red Sea reroutings uproot transship- United Nations Office on Drugs and Crime. 2024. ment trends.” Kuehne + Nagel, September 19, 2024. “Assessment of the Response to Illicit Weapons Trafficking https://mykn.kuehne-nagel.com/news/article/red-sea​ in the Gulf of Aden and the Red Sea.” https://www.un​ -reroutings-uproot-traditional-transhi-19-Sep-2024. odc.org/documents/CRIMJUST/Yemen_Booklet_Online​ .pdf. Maimann, Kevin. 2024. “Cargo ship hit by Houthis sinks, spilling oil and fertilizer into Red Sea.” CBC News, March World Bank. 2024. Dire Strait: The Far-Reaching Impact 3, 2024. https://www.cbc.ca/news/world/houthi-att​ of the Red Sea Shipping Crisis. https://documents1.wo​ ack-oil-spill-1.7132518#:~:text=A%20vibrant%20fishing​ rldbank.org/curated/en/099414105062418860/ ​ pdf/IDU1 %20industry%2C%20coral%20reefs%2C%20desalination​ a1491aa617394148a91856c1eaa57a2​8f15b.pdf. %20plants,ship%20attacked%20by%20Yemen%27s%20​ Houthi%20rebels%2C%20officials%20say. 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