Red Sea crisis ‘will push up Middle East consumer prices’

Reuters

• Houthi attacks raise shipping costs
• 82% of region’s imports at risk
• Inflation and product shortages

Higher prices will be seen in Middle East shops if the crisis in the Red Sea continues for another two months, the research firm BMI has warned.

In late November, Houthi rebels in Yemen began attacking commercial vessels travelling through the Red Sea in what they claim is a show of support for Palestinians in the Israel-Hamas war. 

Around 30 percent of the world’s container vessel traffic passes through the Red Sea, and an estimated 90 percent of those ships are re-routing to avoid security risks in the Bab Al Mandeb strait between Yemen and Djibouti, BMI said. 

• Red Sea attacks could harm more than ports and shipping

• Red Sea crisis a threat to Saudi giga-project investment

• Suez slump compounds Egypt’s foreign currency crisis

The Bab Al Mandeb lane is a key route for ships to access the Suez Canal and transport goods between Europe and Asia.

Many ships are instead going around Africa via the Cape of Good Hope, adding approximately 10 to 15 days to journey times and significant fuel and other shipping costs. 

An estimated 81.6 percent ($229 billion) of Middle East consumer goods imports are exposed to Red Sea shipping disruptions, as those goods are transported using the critical Suez Canal shortcut between Asian and European markets, according to BMI. 

The Middle East is the region most at risk from higher consumer prices as the Red Sea crisis disrupts supply chains and pushes up shipping costs, BMI said. 

Jordan Poulter, a senior consumer analyst at BMI, said the crisis was bringing two main consumer risks. One was inflationary, resulting from “higher immediate shipping costs, which will affect low-cost suppliers and prompt companies to switch to alternative freight methods or more expensive suppliers, or even change production methods to meet consumer demand,” she said. 

The second risk was product shortages, as longer shipping routes cause delays and supply chain bottlenecks. The production slowdown expected during the two-week Chinese New Year, starting February 10, will also hit product availability, pushing up final prices. 

“If the Red Sea is impassable for more than two months, companies will have to pass on heightened costs to consumers while trade links are reorganised and reprioritised. It could take some time to iron out,” Poulter said.  

UAE retailers told AGBI earlier this month that the crisis was only a “hiccup” in their operations and customers should not expect any price rises or product shortages in the short term.