Multinational Operation to Safeguard Red Sea Commerce Amid Yemeni Attacks

Summary

  • The shipping company has temporarily stopped sending ships through the Bab el-Mandeb strait due to attacks on its fleet, causing the Suez Canal to be unusable for most routes.
  • The US is set to launch a multinational operation, Operation Prosperity Guardian (OPG), to safeguard Red Sea trade from Iran-backed Yemeni militants.
  • The initiative will allow maritime trade to resume in the Red Sea/Gulf of Aden, restoring the use of the Suez Canal as a key link between Asia and Europe.
  • However, Maersk could resort to diverting ship traffic based on safety condition updates.
  • Due to safety fears, other companies and the oil giant BP (NYSE:) have also halted transit through the Red Sea.

Shipping Disruptions in the Bab el-Mandeb Strait

Last month, the shipping behemoth halted its vessels’ transit through the Bab el-Mandeb strait following attacks on its ships. This had implications on the Suez Canal’s usage, a critical artery of global trade, for most routes.

US Multinational Initiative for Red Sea Security

Tuesday saw the United States announce a multinational operation to secure commerce in the Red Sea. This operation is aimed at the Yemeni militants, backed by Iran, who have retaliated against Israel’s Gaza war by attacking international vessels with drones and missiles since the previous month.

Operation Prosperity Guardian

Maersk confirmed on Sunday, 24th December 2023, the successful setting up and deployment of the earlier announced Operation Prosperity Guardian (OPG). The primary goal of OPG is to facilitate maritime commerce in the Red Sea / Gulf of Aden again, thus reviving the Suez Canal’s use as a critical connector between Asia and Europe.

Implications of OPG Initiative

OPG’s launch paves the way for vessels to recommence their journey through the Red Sea, both eastbound and westbound. However, Maersk has caveated that it may reconsider diverting ship traffic depending on the fluidity and evolution of safety conditions.

Additional Measures by Maersk

Maersk, on Tuesday, announced the rerouting of ships around Africa through the Cape of Good Hope. The company will introduce container surcharges on Asian shipments to compensate for the added costs of the longer route.

Due to safety concerns, several other firms too have discontinued transit via the Red Sea in recent weeks. The oil major BP (NYSE:) has also followed suit.

Future Forex and trading impacts could include increased costs due to rerouting of shipping routes, influencing the associated asset’s potential performance.

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