Sounion Attack Brings Red Sea Shipping Crisis Back to the Fore

Media attention on the Red Sea crisis has waned over the year after early warnings of shipping delays, inflation and the potential for environmental catastrophe proved, to an extent, overstated. However, an attack on a Greek-flagged tanker carrying sufficient oil to cause a major spill and challenges to the salvage operation have returned the spotlight to the issue, which has the potential to have more economic impact in the run-up to Christmas and as economic growth edges closer to levels last seen in 2019.

The 163,759 deadweight tonnage (DWT) M/V Sounion tanker (built in 2006) has been without power and on fire since 21 August following a series of Houthi attacks. The ship is carrying 922,000 barrels of Iraqi crude oil. Following the rescue of 25 crew members, Houthi militants boarded the ship to lay explosives that were later detonated from the sea, triggering a series of fires. The Houthis justified the attack on the grounds that the tanker had previously called in ‘occupied Palestine’, as the Houthis call Israel. 

A loss of oil from the tanker would lead to one of the world’s worst spills. The UN scrambled to launch a global appeal to remove a similar amount from a decaying floating oil storage and offloading vessel off Yemen last year, and warned of clean-up costs of $20 billion in the event of a disaster.

The Sounion, which is still on fire, has become a danger for navigation and for the environment. EUNAVFOR Operation Aspides said on X that ‘All passing vessels in the vicinity are required to proceed with utmost caution, as the M/V Sounion poses both a navigational risk and a serious and imminent threat of regional pollution’. However, the Houthis agreed on 26 August to allow tugs and rescue ships to reach the tanker. Houthi spokesman Mohammed Abdulsalam told Reuters there is no temporary truce and that the militia agreed to allow the towing of the Sounion only after several international parties, likely including Iran, contacted the group. 

On 14 September a Greek salvage team that was protected by the French destroyer FS Chavallier Paul, the Italian destroyer Andrea Doria and the Greek frigate HS Psara managed to successfully secure the tanker to the Greek tug MV Aigaion Pelago.

The Greek prime minister has led the diplomatic effort behind the salvage along with other European countries, coordinating with Saudi Arabia and engaging via back-channels with Iran, which provides most of the Houthis’ backing. The ‘Houthi Supreme Political Council’ says it will not interfere with the salvage operation, having belatedly realised that the potential disaster it is responsible for would devastate its own coastal communities.

An oil spill on this scale would have serious repercussions, including for the Houthis. The potential to damage fragile ecosystems, fishing areas, and desalination operations in an area lacking fresh water could affect coastlines around the entire Red Sea and Gulf of Aden. The risk of a political backlash may be why the Houthis have facilitated salvage operations, although the attack is so far working in their favour by deterring vessels and demonstrating the ongoing ability of the Houthis to disrupt shipping, with potentially devastating consequences.

In the event of a spill, the Houthis are unlikely to receive support from insurers, shipowners or the International Oil Pollution Compensation Fund, which the International Maritime Organisation has already confirmed will not pay out in this case as it does not cover acts of terrorism. A spill could lead to insurance payouts of more than $600 million. Coverage for damage arising from war is typically excluded from standard protection insurance policies. Shipowners can purchase standalone coverage from specialist war risk insurers, but this is not compulsory. 

This is not the first time Yemen has been threatened with an oil spill. In October 2002, a large crude carrier called Limburg was attacked by Al-Qa’ida, spilling around 410,000 litres of oil in the Gulf of Aden. The vessel, cargo and victims of the attack received insurance payments, but the clean-up costs strained the budget of what was already one of the poorest countries in the Middle East, with substantial damage to the Yemeni economy. Yemen is likely now in an even worse position to tackle an oil spill than it was in 2002. 

Insurance costs would come at a time when the shipping insurance industry is already facing a potential claim of as much as $4 billion as a result of the Baltimore bridge disaster, potentially one of the largest claims in maritime history and double the $2 billion claims for the Costa Concordia. As well as adding to shipping costs through higher premiums, the incident might make the case that public insurance for shipping passing through the Red Sea is necessary to help roll back the strategic success of Houthi attacks in re-routing traffic around the Cape of Good Hope (CGH). 

Ongoing Impact on Shipping

In 2023, an estimated 21,344 ships crossed the Red Sea, averaging 59 vessels a day and making up 12% of global trade. In July 2024, 905 cargo-carrying vessels sailed in the Red Sea (only 30 vessels per day), carrying approximately 66 million DWT. Data suggests that more shipowners are becoming reluctant to use this shipping lane, with transits continuing to fall over the year. Safety is paramount to the return of normal operations in the Red Sea. However, ‘safe’ is hard to define, making the path to normalisation unclear. For those that have rerouted to avoid the Red Sea, the question of when they will return to these transits is not an easy one to answer.

Vessels serving the Europe–Asia trade save approximately 4,000 nm by using the Red Sea compared to the CGH route. The longer route can add up to two weeks to shipping times and cost up to 35% more. Environmental costs are also higher due to longer distances and the higher speeds that are used to reduce delays. While the inflationary impact of this rerouting has thus far been offset by the savings vessels make on Suez Canal tolls as well as the fact that tepid global growth has meant that there is a glut in the global shipping market, this could change. The current EU Emissions Trading System bill can be as high as €18 per twenty-foot equivalent (TEU) container. The seismic change in global logistics is apparent in container traffic data. Prior to the first attack, 53% of Asia-to-Europe shipping passed through the Suez Canal, 23% through the Panama Canal and 23% via CGH. This has now switched to 15% through Suez, 26% through Panama and 58% via CGH. 

Not all products are facing the same impact. For example, the transit time for Ukrainian grain to reach Eritrea has increased from eight days to 38 days as a result of the crisis. Vessels are speeding to minimise the impact on transit times. A vessel travelling from Singapore to Rotterdam, for example, might decrease its transit time via CGH from 34 days to 31 days with an increase in speed from 15 to 16.5 knots. While this might not sound much, the modest speed increase helps to make the Asia to Europe route just ‘fast’ enough for ships to arrive exactly one week later than via their original routing (at the ‘old’ speed of 15 knots).

Some vessels are still using the Red Sea. To protect themselves, most vessels switch off their Automatic Identification System (AIS), which is used to avoid collision for water transport but has also been used by Houthi forces to target ships. On average, about 15 vessels each week are disabling AIS to pass through the chokepoint. There have also been reports of some vessels using AIS messages saying ‘All Chinese Crew’ or ‘No contact with Israel’ to avoid attack. UK Maritime Trade Operations is aware of an entity claiming to be from the Royal Navy requesting that vessels turn on their AIS to provide a position update. Vessels with known links to the US, the UK or Israel are essentially uninsurable for Red Sea transits.

To avoid delays and ensure sufficient stock for Christmas, companies are already shipping products from Asia to Europe, with shippers unwilling to risk a repeat of the seasonal chaos of the Covid-19 pandemic. The result has been record-breaking volumes from China ahead of the traditional peak season in the third quarter. This will reduce pressure over the coming months but is far from ideal, as despite record orders, many companies have not yet placed orders for Christmas. Earlier orders result in additional costs as companies have to pay factories earlier for goods and store high levels of inventory. Both costs are significant, and companies are examining the impacts of running out of stock versus higher costs. 

The longer journey times caused by the Red Sea crisis have had the benefit of absorbing the 10.6% year-on-year increase in the global container fleet: a huge injection of 2.85 million TEU slots. The Asia–Europe fleet grew even faster at 23.8% because of the longer voyages and to avoid gaps in the schedule. Capacity is tight, with only 0.6% of the total fleet idle, meaning that shipping prices may be vulnerable to any additional shocks. Attacks from Houthis are negatively affecting shipping stock prices which, in the long term, could have a detrimental impact on decarbonisation as shippers seek funds to invest in lower emissions technologies.

Strategic Implications

At present, both the Houthis and the countries participating in the Prosperity Guardian coalition are in a Nash equilibrium of sorts – neither side can up the ante in ways that impose substantial real costs on the other. The coalition has struck a number of targets ashore, but has thus far shied away from attacks on targets such as leaders or command and control structures, instead focusing on radar stations and missile launchers, which can be replaced. While the coalition can up the ante, doing so would risk escalating a combustible regional situation; not doing so, however, means that the Houthis can shrug off the damage inflicted and continue attacking ships. Equally, by the middle of 2024 it had become clear that the Houthis had reached the limit of their ability to inflict meaningful economic damage, with little measurable effect on inflation. In addition to offsetting savings and a shipping glut, this reflected the growth in inventory depth across a number of sectors after the supply chain disruptions of 2021.

Should the demand for shipping increase and be compounded by additional regulatory considerations, however, this fragile equilibrium might cease to hold. The long-term impact on consumer price indices may be more significant, reaching up to 0.3 percentage points annually in Europe according to some estimates. Moreover, there is some indication that companies were beginning to depart from the practice of maintaining substantial inventories in late 2023 given the costs involved, which would remove another factor that has dampened the de facto blockade’s impact.

If the status quo becomes untenable, the coalition will have to contend with the same problem it has faced throughout the conflict – how to impose costs which the Houthis regard as being meaningful while avoiding a much more economically ruinous regional war. In the event that the conflict on the Israel–Lebanon border escalates, both the West and Iran will have a choice as to whether they keep the conflict geographically confined, with pressure in the Red Sea being a viable avenue for Iran to pressure Western states should a conflict in Lebanon occur later this year. To be sure, the situation on the Lebanese border also provides opportunities, since Iran is unlikely to wish to contend with pressure on two of its key regional proxies at the same time. The challenge, however, is that the Houthis do not have to substantially escalate their activity to have a meaningful effect, and the absence of a ground threat to the bases of their power (unlike Hezbollah in Lebanon) limits the risk that any escalation poses to them. As such, the question of what a credible threat looks like is one that Western militaries and policymakers will have to contend with.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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