The Financial Times has issued a report warning of the potential impact of US strikes against Houthi rebel targets in Yemen. The strikes, which have raised fears of a wider conflict in the Middle East, come at a time when inflation is receding. The British media also highlighted the large-scale rerouting of cargo ships away from the Red Sea waters due to Houthi armed attacks.
Economists are expecting the impact of the attacks on commodity prices to be relatively contained. However, concerns are growing that deeper involvement of the US military in the region’s crisis could have more serious indirect impacts on basic commodities, including oil. The ongoing crisis in the Middle East since Hamas’ “Aqsa Flood” operation against Israel has also been a cause for concern.
The impact of the Houthi attacks on the global supply chain has been significant, with container flows through the Red Sea dropping significantly since the attacks began in October 2023. This has led to a substantial increase in shipping costs and transit times, affecting trade and the overall economy.
Some economies, such as Egypt, are already feeling the impact due to the country’s reliance on shipping revenue from the Suez Canal. The disruption in shipping has also affected companies like Tesla, which have experienced delays in receiving parts, leading to factory suspensions.
While central bankers remain relatively optimistic about the impact on the overall economy, analysts warn that prolonged chaos in shipping routes could lead to more serious economic problems. Higher shipping prices could potentially add to annual consumer price index inflation, and concerns about the possibility of a wider conflict in the Middle East have also led to worries in oil and gas markets.
The current situation poses significant economic risks, particularly in the energy sector. Any increase in energy costs could hinder efforts by central banks to curb price increases. The threat of inflation is heightened by the potential impact of prolonged chaos in global shipping routes on freight rates.
The broader implications of the conflict in the Middle East on the global economy are concerning, and analysts and experts are closely monitoring the situation for further developments and potential impacts.