Assessing the costs of the Red Sea attacks

The attacks on commercial shipping off the coast of Yemen have significantly reduced traffic on one of the main arteries for global trade. By mid-January six of the world’s top ten container carriers had diverted away from the Red Sea (with these firms accounting for around 60% of global capacity). Several oil tanker operators have similarly advised their vessels to avoid the region.

The most immediate impact of the disruption was a spike in sea freight prices and the extension of delivery times from Asia. Higher shipping costs could put modest upward pressure on inflation over time (potentially adding up to 1% point to inflation over the year ahead). But the impact should be much more limited than in the aftermath of the pandemic, and the reaction in energy markets has been muted so far.

What is the potential impact on supply chains?

• The Suez Canal is one of the world’s