The detour journey around the Cape of Good Hope has pushed, in little less than a month, the Shanghai Containerized Freight Index (SCFI) benchmark by 161 percent, from $1,029 to $2,694.
At the same time, the price of oil rose on concern that supplies out of the GCC region could be disrupted; tracking data suggest that at least 10 oil tankers are diverting from the Suez Canal route while the number of container ships on detour remains unaccounted, but the count is increasing daily.
About 15% person of the world’s seaborne trade passes the Suez Canal and the armed Houthis forces have taken hostage world trade, economic prosperity, and social-political stability by attacking cargo transiting through the mouth of the Red Sea.
For the time being, the concerns are not in Europe, but rather in China. The country’s economic situation is by far not optimal and smooth exports to Europe and the States, which are suffering ever since Covid, are highly required – China’s exports have paddled backwards since June due to weak global demand. While the Chinese government aired its frustration about the regional instability in the UN Security Council, it has not undertaken any curative action on Israel’s war on Gaza, bet it directly or through its local partners. Rather, it has issued concerns that the US/British lead collation would not increase regional security, eliminate the navigation crisis, and put world-trade at risk.
By indirectly supporting the Houthi attacks, China is performing some complex political gymnastics. In fact, after promoting successfully the BRICS membership for Saudi Arabia and the UAE, Beijing hopes to extend its regional influence to include Iran, which in turn supports armed groups around the Middle East including both the Houthis and the Hamas militants that control Gaza.
In the hope of delegitimizing DM long-term prospects for leadership of the Global South, Beijing is likely to undertake any action that would undermine any political support for the US/UK-led coalition against the Houthis.
For now, China’s calculus and regional power play appears to hold true as the Houthis have ignored attacking west bound oil tanker. The only incident that occurred involved a un protected Russian oil tanker bound to Fujairah’s recently opened crude oil storage caverns.
Given today’s regional power play, it is not surprising that the major Arab states chose not to be active partners in the coalition. Their passive stance is reinforced in the absence of a UN mandate. But there is a second read why the major economic powers in the Middle East are reluctant to engage in either action. Here is the take:
For some time now, Houthis use any opportunistic moment to improve their local leadership. Ever since 2018, Houthi missiles have been striking, in more or less regular intervals, Aramco’s oil infrastructure, a centerpiece of Crown Prince Mohammed bin Salman’s cash factory supporting the kingdom’s economy. On January 17, 2022, the UAE has experienced a similar threat. The Houthis hit with drones and missiles an industrial location close to Abu Dhabi Airport.
The Houthis aim at discrediting Saudi Arabia and UAE efforts to gain recognition. While MBS engages taking up participation or full control of discretionary companies and entertainment, respectively sports game organizations, MBZ pushes through a complex re-alignment of the country’s foreign policy: there have been formal efforts to create strong ties with Israel (which have somehow vanished over time) and before the Football World cup, the UAE undertook a significant effort to defrost the relationship with Qatar. At the same time, a warming with Turkey and other nations took place. Lastly, the UAE approached Tehran with the idea of reestablishing a diplomatic link.
Visibly, in the eyes the Houthis, the efforts were a little too plain and they wanted their share of benefit. For instance, the reconciliation agreement between the Houthis and one of the former countries involved a nine-zero $ payment in favor the militia in Yemen and hence they assert themselves as a central pillar in Iran’s ‘axis of resistance’.
The US/British-led military campaign against Houthi targets are expected to provoke the resumption of the threats against Saudi Arabia and United Arab Emirates. Both States have actually privately stressed this with the US this week. The resurgence of the conflict would undoubtedly throw the China-brokered Saudi–Iran de-escalation process into the void. The crux of the story is that for Beijing, the Iran-Saudi peace deal is the foundation for further regional presence. There are three likely scenarios how Chinese interests could be challenged in the region.
They are:
- The Houthis try to block navigation in the Strait of Hormuz and thereby try to break free from the Iran initiated dogmatism. Apart an increased level of risk for the shipping industry, Saudi Arabia’s oil infrastructure could increasingly be at risk too,
- China might press Iran to take-over control of the Houthis – which will put the US/British-led military coalition in a quandary as Biden has not obtained a much-needed approval from the Congress to legitimatize the action in the Middle East. Remember, there are US Presidential election later this year and any misstep by the present Administration would be election negative.
Scenario 1 and 2 would accelerate regional countries’ collaboration further, bringing GCC even closer to China and Russia.
- The US/UK-led coalition and their allies could increase their collaboration with Arab countries on the crisis, while at the same time the US diminishes their support for Israel. By doing so, there is a limited political cost for the Biden Administration. However, the benefits would be three-fold: it would achieve a de-escalation with minimum risk to regional stability. The second benefit would bring stability into the region and immediate ceasefire in Gaza. Not only would the Biden administration counter Chinese and Russian long-term influence in the region, but there could be a short-term election benefit for Biden too.