As months go by with no sign that ships transiting the Red Sea will become safe from attack, a realization is taking hold that could portend an open-ended new reality for the container shipping industry: Compared with other geopolitical and military issues confronting the United States and other western governments, the Suez diversions are a declining priority.

Not only are several scenarios being confronted with much larger stakes, such as the ongoing Russia-Ukraine war and the possibility of escalation in the Middle East, but economists say there is little in the Red Sea diversions that is cause for serious economic concern.

"While the US was initially very concerned both about the demonstration effect of Houthis interrupting trade flows in the Red Sea and the knock-on economic/inflation effects, these have lessened over time," said Bruce Jones, a foreign policy senior fellow at the Brookings Institution and author of To Rule The Waves, a well-regarded book on the convergence of geopolitics and containerized supply chains.

"There are already wider Israel-Iran-US dynamics in play that appear to supersede the question of attacks on shipping...," Jones told the Journal of Commerce.

The lack of economic impact, based on more than half a year of data since the attacks in the Red Sea and Gulf of Aden began in December, is part of the reason the diversions away from Suez and around southern Africa are now eliciting a shrug on the part of Western governments.

Red Sea disruption having 'limited effects'

"The indicators which we track to monitor the macroeconomic impacts of shipping disruptions suggest rather limited effects to date," Ken Wattret, global economist within the Insights and Analysis team at S&P Global Market Intelligence, told the Journal of Commerce. "Although container rates have risen markedly, the effects on consumer price inflation again appear rather limited to date."

Even if Western governments had the resolve to ramp up a military campaign against the Houthis operating from Yemen beyond the occasional air strike, the realization has set in that options such as bombing campaigns will fail to dislodge the non-state militia, meaning that a diplomatic solution is the only realistic path to re-establishing normal shipping patterns.

"Bombing the group into submission will not work. The Houthis can endure significant punishment and continue to launch attacks against Red Sea shipping and against Israel," Alexandra Stark, associate policy researcher at the Rand Corporation, wrote in Foreign Affairs on Aug. 2. "After decades of insurgent warfare, they are adept at moving and concealing their assets."

And a diplomatic breakthrough, at least at the moment, appears nowhere on the horizon.

"It is very unlikely that, with the war in Gaza and the risk of much wider confrontation between Israel and Hezbollah increasing, a wider diplomatic settlement will be secured that fundamentally alters the Houthi's current position and intent to disrupt shipping," Jack Kennedy, head of desk/country risk for the Middle East and North Africa at S&P Global Market Intelligence, told the Journal of Commerce.

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The Houthi agenda

Putting a diplomatic solution even more out of reach is the possibility the Houthis would not stand down even in the event of an Israel-Hamas ceasefire despite the attacks on shipping being launched in response to that conflict.

"The Houthis continue to claim that their attacks on shipping are due to Israel's combat operations in Gaza and have linked attacks on Israeli territory with other Iran-aligned militant groups in the region," Kennedy said. "But we consider this to be a deliberate misrepresentation of their wider intent to secure international recognition of their position in Yemen and to establish a meaningful role as a regional geopolitical actor."

Others agreed the Houthis have an agenda that goes well beyond the Israel-Hamas conflict.

"The Houthis have … been able to successfully use violence to portray themselves as the defenders of the Palestinians, bolster their legitimacy at home and abroad, and demonstrate their importance as a key member of Iran's 'axis of resistance,'" Stark wrote. "They see their war as a public relations initiative, and so far, in their eyes, it has been worth every ounce of blood and treasure."

All of which points to a longer, drawn-out crisis for supply chains — less so for container carriers reaping yet another unexpected windfall — and one that will likely continue for many months to impact container shipping markets by absorbing vessel and equipment capacity and lengthening transit times.

"The situation on the ground is not deescalating; rather, we believe the situation is entrenched and expected to stay at least until the end of 2024," A.P. Moller-Maersk CEO Vincent Clerc told analysts on Aug. 7.

Kennedy agreed: "Without a wider settlement and with Israeli military operations in Gaza likely to continue, at least in a reduced intensity, through the rest of the year, it is unlikely that Houthi activity to disrupt shipping will decline significantly in the six-month outlook, at least," he said.

The Houthi attacks on shipping also raise another worrisome possibility that other militia groups similarly able to access funding and weaponry will seek to emulate the Houthis, wreaking havoc on shipping in future potential hotspots, Kennedy said.

"What the situation over the last 10 months has really demonstrated is what an effective impact a motivated militant group can have if it has a favorable geographic position and external backing to provide advanced weapons systems," he said. "The kinds of weapons systems that the Houthi have been deploying favor asymmetric warfare, are relatively cheap to manufacture and maintain, and are very difficult for conventional defense systems to engage."

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.