The Red Sea: a cautionary tale

Reuters/Khaled Abdullah

After weeks of speculation, the US and Britain have responded to Houthi attacks on shipping in the Red Sea with warplane and missile strikes on targets in Yemen. 

Following a spike in attacks, several of the world’s largest shipping companies said in mid-December that they were avoiding the waterway between the Arabian Peninsula and East Africa.

This waterway is one of the world’s major maritime choke points – approximately 15 percent of globally traded products flow through there. 

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At this stage it would be wrong to sound the alarm bells too loudly. Dated Brent, the global benchmark for oil, is up a little over two percent and commodity markets generally are in wait-and-see mode. 

For now, there are numerous alternatives available to traders to ship goods to the GCC states via the Cape of Good Hope or airfreight. But there are implications if the crisis persists in the longer term. 

This especially relates to the trade in food, and grains in particular.

The Middle East and North Africa region imports the great majority of its strategic grain commodities, such as wheat and barley, from the Black Sea region, the EU and North America. 

Far less comes from the southern hemisphere for the simple reason that most grains are produced in the north. Wheat grown for export, for example, has a ratio of 80:20 in favour of the northern hemisphere. 

The important months for wheat traders are March, May, July, September, and October. This is when shipment deals are struck, and vast quantities are shipped across the globe.

We are not yet in March and the Chicago Wheat Future Index is still lower than a year ago. But if the crisis persists, wheat future prices are likely to respond. 

The wheat problem

While the Red Sea crisis is unlikely to cause physical shortages, prices may be affected. For now, importers are able to cushion any food import price increases, but this is where caution should set in. 

Despite fears over an all-out food crisis in 2022 after Russia’s invasion of Ukraine, wheat markets were able to provide remedies due to bumper crops in Russia in 2022 and 2023, as well as a UN-brokered trading agreement in the Black Sea region. However, most of the wheat grown in Russia and Ukraine is rainfed. Summer rains have been good over the past few years. But climate change-induced droughts could affect this within months. 

If rainfall in the major production centres in the northern hemisphere disappoints this year or over the coming years, grain supplies are likely to be hit hard. An ongoing crisis in the Red Sea could therefore exert its full negative impact later in the year.

Freight costs may also contribute to food inflation, which has already seen several years of steep increases, especially in lower income countries. 

Wheat is still the predominant source of affordable calories in the Arab region, and consumption is significantly higher than in the countries of the OECD, the so-called rich country club.

Per-capita consumption per year is about 130kg in the Arab world compared to 85kg in the OECD. The six GCC economies consume about 90kg per person per year. 

Arab countries have tried to diversify their grain import sources for years with mixed levels of success. The cheapness of Russian wheat and ongoing economic crises mean that reliance on wheat imports from Eastern Europe and the Black Sea has not diminished. 

For the GCC and Sudan, all exports ideally need to cross the Red Sea. Other Arab countries may be affected by another round of wheat price spikes partly as a result of the Red Sea crisis. 

The key difference in the Red Sea is the nature of the conflict. For exporters and shipping companies, guerilla warfare of sub-national military groups can be more difficult to manage than inter-state conflicts. 

Opportunities to escape the grip of geopolitics 

The latest crisis in the Red Sea, along with previous crises have revealed the fragility of food supply chains to the Arab world. But the latest conflict could concentrate minds. 

Ideally, more strategic crops should be grown domestically. Wheat is not an ideal crop to be grown in the Arab world due to the absence of readily available water. Instead, drought-resistant and less water-intensive millet crops present the region with an opportunity to de-couple from world food markets. 

Foxtail millet, for example, can be grown in the hot conditions of the Arab Peninsula and can provide much-needed carbohydrates for growing populations. Although millet is more bitter than wheat, food scientists can work to mitigate the bitterness. 

This is a safer option to prepare the region for future climate-related and political challenges. 

After all, the Red Sea crisis may just be one of the many crises to come in an age of climate change and uncertain geopolitical events.

Martin Keulertz is a lecturer in environmental management at the University of the West of England, Bristol