A Politico correspondent has reported that the Pentagon has launched Operation Prosperity Guardian, which is a naval coalition to defend the Red Sea Passage.
Politico’s chief Pentagon correspondent reports that a US-led naval coalition is finally uniting to safeguard international shipping transit in the Red Sea and the strategically important Bab al-Mandab Strait: “The Pentagon is expected to announce tomorrow the formation of Operation Prosperity Guardian, a new task force to protect shipping from Houthi attacks in the Bab Al-Mandeb Strait and the Red Sea, per DOD official,” Lara Seligman writes on X.
“The operation will be within the framework of the existing Combined Maritime Force 153, a partnership of 39 nations focused on counter-piracy and counter-terrorism in the Red Sea.”
Shortly thereafter, Defense Secretary Lloyd Austin announced, “I am announcing the establishment of Operation Prosperity Guardian, an important new multinational security initiative under the umbrella of the Combined Maritime Forces and the leadership of its Task Force 153, which focuses on security in the Red Sea.”
A few days ago, it was reported that the Pentagon was trying to put up the “broadest possible” coalition task force in response to the Houthi attacks on commercial vessels, which are now occurring daily and are supported by Iran. Additionally, the Houthis have occasionally fired drones and rockets into southern Israel, resulting in US Navy intercepts.
Only a few hours ago, we informed readers about Zoltan Poszar’s forecast that “military protection” akin to that of a central bank will soon become a reality. And just like that, it has:
Protection is a conceptual counterpart to par. When you decide to take money out of a sight deposit, you expect the same amount back that you put in (par).
When you sail foreign cargo from port A to port B, you expect to unload the same amount of cargo that you onloaded.
Banks can deliver par on deposits most of the time. When not, central banks step in to help.
Commodity traders can deliver foreign cargo from port A to port B most of the time, but when not, the state intervenes again: not the monetary arm, but the military arm of the state.
What central banks are to the protection of par promises, the military branch is to the protection of shipments: foreign cargo needs to sail on sea routes and through choke points like the Strait of Hormuz, and “par” in this context means being able to sail from here to there freely, safely, and without undue delays…
It has also come to light that, given the strengthening of connections between Australia and the US resulting from the AUKUS contract, Australia is anticipated to have a significant part in Red Sea operations.
The following is an explanation from Rabobank:
Australia is reportedly in talks with the Pentagon over a US request to send an Australian warship to the Red Sea to assist in dealing with Iran-backed Houthi rebels, who have been disrupting commercial shipping in the region and launching missile and drone strikes against US targets and their allies. This request comes just days after Congress passed laws enabling the sale of Virginia class submarines to Australia under the terms of the AUKUS pact.
The agreement marks just the second time that the United States has shared nuclear secrets with another country (on purpose, at least), so it appears that there is an element of “I scratch your back, you scratch mine” going on here. This is not without its complications, as many members of Australia’s political establishment (particularly within the ruling Labor Party) still cling to dreams of ‘strategic autonomy’ of the kind that doesn’t even work for Europe.
Their fear is that AUKUS, and an Australian warship shooting down drones in the Red Sea, further locks Australia in as an organ of US foreign policy, which it probably does. But really, this is par for the course and probably just the modern incarnation of Australia’s long-running policy of having ‘great and powerful friends’. Quite aside from the diplomatic horse-trading that accompanies it, disruption of shipping in the Red Sea is a big problem, and Europe has the most to lose. 150 years of supply chain improvement risks being unwound as major shipping companies redirect vessels around the Cape of Good Hope to avoid traversing the region to pass through the Suez Canal into the Mediterranean.
Amidst additional assaults and detours…
We examine the actual scope of the Houthi assaults on tankers in the Middle East.
The cost of oil is growing.
Furthermore, considering the drastic positions in managed money…
And CTAs making abrupt swings…
We believe the market is undervaluing the significance that Mohammed Al-ansare, Kelly Norways, and Jennifer Gnana of S&P Global explain below:
- Cape transport option adds 40% to voyage distance
- Houthis targeting tankers, container, cargo shipping
- Container rates rise to 2023 high
On December 15, major shipping companies stopped passing through the vital Bab al-Mandeb chokepoint in the Middle East for seaborne trade, fearing that continuous strikes by Houthi insurgents in Yemen would disrupt international trade.
Huge Danish shipping company A.P. Moller-Maersk, which holds 15% of the world market for container freight, has halted operations via the Bab al-Mandeb until further notice. Following a Houthi attack on one of its ships, Hapag-Lloyd, which holds a 7% share in the container market, likewise suspended shipping through the Red Sea until at least December 18.
The Houthi rebels in Yemen fired a missile at Hapag-Lloyd’s Liberia-flagged Al Jasrah containership, which caught fire in the Red Sea on December 15. The Houthis launched the attack one day after a cruise missile nearly hit the Maersk ship Gibraltar on December 14.
The suspensions are the most recent indication that large ship charterers, who have been deploying armed guards to secure transit through Bab al-Mandeb in recent weeks to ensure safety, are starting to rethink using the strait, which is responsible for 10% of the world’s seaborne oil shipments.
The Houthis have vowed to destroy any ship that belongs to Israel or is sailing toward one of its ports. All commercial ships, including car carriers, tankers, and dry bulkers—many of which had no apparent relation to Israeli trade—have thus been targeted for attacks.
“The pattern I see [in the] last few days is more attacks on all these container line big boys like MSC, Maersk, NYK Line, Hapag-Lloyd. If you scare them, then you stop hundreds of their ships,” Luv Menghani, a shipbroker with Dubai-based BluePeak Commodities and Shipping, said.
The directive from Maersk to its ships to stay out of the Red Sea “suggests an escalation in the response to the Houthi attacks,” according to Eurasia Group analyst Gregory Brew.
“Yesterday’s attacks suggest the Houthis are broadening their attacks are becoming more indiscriminate, rather than focusing just on ships owned by Israeli companies or bound for Israeli ports,” he added.
Trade Flows
The Red Sea is connected to the Gulf of Aden and the Arabian Sea by the 20-mile-wide Bab al-Mandeb, which is located between the Horn of Africa and the Gulf Peninsula. The US Energy Information Administration estimates that in the first half of 2023, it made up 8.8 million b/d of all oil flows. According to EIA data, 4.1 billion cf/d of LNG were shipped over the strait during that time.
Following a notification to their fleets on December 14 to consider using the lengthier Cape of Good Hope as an option—a move that adds 40% to the voyage distance—the two shipping corporations decided to suspend their Red Sea route.
Due to increasing attacks by Yemeni rebels, liner companies have rerouted ships via the Cape of Good Hope (CGH) to avoid hostilities that could impact container ship traffic in the Red Sea. The ongoing conflict in the Middle East has already forced some carriers to avoid the Suez Canal in the interest of security in recent weeks.
As of December 12, the eastbound vessels MSC Diana and Zenith Lumos, which had transshipped in Tangier and Algeciras, respectively, had passed through the Cape of Good Hope, according to real-time AIS data tracking provided by S&P Global Commodities at Sea.
The Maersk Camden, Maersk Campton, and MSC Virgo have all veered through the CGH during westbound trade, even though recent historical vessel tracking indicates that prior moves have been through the Red Sea and the Suez Canal.
Following the announcements from Maersk and Hapag-Lloyd, other carriers may feel pressured to declare publicly that they will not be accepting any more shipments from the Red Sea as long as the situation remains unstable.
“Despite the complications it would cause with our shippers in terms of delivery and transit times, what is most important is the dialogue we have with our crew in our ships,” a carrier source told S&P Global Commodity Insights.
War risk
Additionally, freight forwarders are raising their shipping costs. For instance, a document viewed by S&P Global indicates that a war risk surcharge of $100/teu will now be applied to containers going to the Middle East for dry and refrigerated goods.
War risk surcharges have started to mount for several ships traveling through the Red Sea. The Haifa, Israel-based carrier Zim Integrated Shipping Services (Zim) has raised freight charges on its Asia-Med route to offset growing vessel security expenses.
If more carriers follow suit, container rates for important shipping channels from North Asia heading westward will probably receive more assistance. Delivery times are expected to climb by 10 to 15 days, further depressing the already meager supply brought on by carriers’ aggressive blank sailing tactics in the run-up to the Lunar New Year, when demand soars.
The Pentagon has reported that the US warship USS Thomas Hudner has intercepted a drone fired from Yemen against Israel.
S&P Global Platts estimates that container prices for exports from North Asia to the UK, a route that traverses the Red Sea and Suez Canal, have reached all-time highs for 2023.
The recent spike in attacks against cargo ships and tankers carrying oil products affected the price of oil. On December 15, Platts’ estimated date for Brent was up at $77.085/b, up less than 1% for the week.
The creator of Singapore-based Vanda Insights, Vandana Hari, said that “shipping will often be the canary in the coalmine” in 2024 when geopolitical tensions are expected to be a major concern.
LPG flows
Charterers using shorter routes to Yemen have also been harmed by the maritime hazard.
According to sources who spoke with S&P Global, ship charterers who have contracts to transport liquefied petroleum gas to Yemen—a country that has seen a spike in fuel shipments—are hesitant to leave the port out of concern for possible attacks.
For instance, the sources claimed that an LPG ship contracted by a Dubai-based company and carrying a 44,000-ton cargo destined for Yemen recently refused to take sail due to crew safety concerns.
The crew’s decision to decline to go to Yemen coincides with the war-torn nation’s increased purchase of LPG. S&P Global Commodities at Sea reports that 46,000 tons of LPG, all of which came from Iran, were shipped to Yemen in December. According to shipping records, the amount of LPG imported is almost twice as much as the last shipment Yemen got in July.
According to a shipbroking source, tanker rates for Yemen are also increasing due to the most recent increase.
“One vessel below 15,000-ton dead weight, old built, transporting gasoline from the UAE to Hodeidah in Yemen used to charge $12,000-$13,000 per day. Now they charge $16,000-$17,000 per day,” said the source.
Protection is a conceptual counterpart to par. When you decide to take money out of a sight deposit, you expect the same amount back that you put in (par).
When you sail foreign cargo from port A to port B, you expect to unload the same amount of cargo that you onloaded.
Banks can deliver par on deposits most of the time. When not, central banks step in to help.
Commodity traders can deliver foreign cargo from port A to port B most of the time, but when not, the state intervenes again: not the monetary arm, but the military arm of the state.
What central banks are to the protection of par promises, the military branch is to the protection of shipments: foreign cargo needs to sail on sea routes and through choke points like the Strait of Hormuz, and “par” in this context means being able to sail from here to there freely, safely, and without undue delays…