Associate Professor Goh Puay Guan from the National University of Singapore Business School said that ships could be forced to make a lengthy detour around the Cape of Good Hope in South Africa, as they did when the Suez Canal was blocked by the massive Ever Given ship, as well as during the Israel-Hamas war.
“In both cases, these led to higher freight costs and also shipping delays,” Assoc Prof Goh noted.
“A longer, sustained disruption would have a much higher and broader economic impact than a shorter-term disruption and spike in prices,” he added.
“Already, we are seeing various governments having to react to the higher prices, and there would likely have to be more policy interventions.”
How could it impact energy prices?
Energy markets are already bracing. Analysts estimate oil prices could rise by US$5 to US$10 per barrel if the Bab el-Mandeb is effectively closed.
The Houthis have proven to be “remarkably effective” at disrupting shipping flows in the Red Sea, noted June Goh, senior oil market analyst at Sparta Commodities.
Ms Goh noted that at the height of the disruption in 2024, when the Houthis systematically targeted ships sailing through Bab el-Mandeb, oil flows were significantly reduced, and tanker rates surged as shippers rerouted their cargoes.
Any attempts at disruption in the current climate will be “catastrophic to the crude and product supply out of the region”, said Ms Goh.
Saudi Arabia may ultimately face the hardest choices.
Given the disruptions in the Strait of Hormuz, the Red Sea has been an alternative route for the kingdom to transport crude to Asia.
If the Houthis begin targeting Red Sea shipping, analysts said Saudi Arabia’s current restraint in the war may not hold.
Riyadh might consider retaliation, “even if limited”, Saudi security analyst Hesham Alghannam told AFP.