Will Israel-Hamas Peace Deal Open Red Sea Shipping?
Are we finally going to see a return of normalcy for container ships moving through the Gulf of Aden and Red Sea to utilize the Suez Canal in international shipping? Rerouting ships down and around Africa resulted in massive freight rate increases for shippers and was caused by Gaza-War-linked, Iran-backed Houthi attacks on ships. Now, we’re finally seeing an end to the Gaza War.
Peace Deal
What should be the biggest news story at the moment is Israel and Hamas agreeing to the first phase of a peace deal proposed by the Trump Administration. In a Truth Social post, President Trump wrote:
I am very proud to announce that Israel and Hamas have both signed off on the first Phase of our Peace Plan. This means that ALL of the Hostages will be released very soon, and Israel will withdraw their Troops to an agreed upon line as the first steps toward a Strong, Durable, and Everlasting Peace. All Parties will be treated fairly! This is a GREAT Day for the Arab and Muslim World, Israel, all surrounding Nations, and the United States of America, and we thank the mediators from Qatar, Egypt, and Turkey, who worked with us to make this Historic and Unprecedented Event happen. BLESSED ARE THE PEACEMAKERS!
Hamas’s head negotiator went so far as to say the agreement on the phase one peace deal comes with guarantees from the U.S. that the war in Gaza “has ended completely.”
This comes just over two years after the barbaric attack from Hamas, in which they murdered over twelve hundred people and took 251 others hostage. The remaining hostages – those who’ve survived and the bodies of the dead – will now finally be released.
Red Sea Security?
An end to the fighting in Gaza does not necessarily mean immediate safety for ships in the Red Sea and Gulf of Aden.
It seemed there had been significant improvement on the safety of ships in the Gulf of Aden and Red Sea recently. The Trump Administration had even gained a ceasefire from the Houthi in early May.
However, Morgan Phillips reported in a Fox News article yesterday that a crew member died from injuries sustained from a Houthi attack on a Dutch cargo ship that took place about a week and a half ago on September 29th.
“The Houthis have not violated the ceasefire provision banning attacks on U.S. ships,” Phillips writes, “but have breached the agreement’s clause requiring ‘the smooth flow of international commercial shipping.'”
And that should be more than enough to keep carriers away from returning to normal container flow through the area for a while.
What Carriers Say About Safety in the Red Sea
A few days ago, in a FreightWaves article titled “Red Sea carriers wait and watch Gaza peace talks,” Stuart Chirls cited a few of the world’s top ocean freight carriers expressing caution about a return to shipping through the region because of security concerns:
Vincent Clerc, chief executive of A.P. Moller-Maersk (OTC: AMKBY), stated that even after a ceasefire between the United States and the Houthis, shipping firms are unlikely to send vessels through the Red Sea until security is reliably restored, noting that the risks to crew safety and vessels are still unacceptably high.
Soren Toft, CEO of Mediterranean Shipping Co., the world’s largest carrier, also has cautioned against a rapid return to the region until security improves.
Ocean Network Express Chief Executive Jeremy Nixon said that the alliance’s full-year forecast faces headwinds due to persistent geopolitical uncertainties, including the continued incidents in the Red Sea. As a result, vessels are expected to keep rerouting around the Cape of Good Hope, he said, which places sustained pressure on the global supply chain.
Financial Incentives to Stay Out of Red Sea
Carriers are likely in no rush to return to the Red Sea and Suez Canal anyway, as diverting ships away from the region has been extremely lucrative for them. Freight rates skyrocketed after Houthi attacks started in the Red Sea and Gulf of Aden. Diverting ships around the Cape of Good Hope required the use of more capacity for the same amount of shipping. That reduction in supply put upward pressure on freight rates.
In fact, rate increases, particularly early on in the crisis, were so massive, there were some accusations of ocean freight carriers profiteering off the geopolitical volatility.
Now, however, freight rates have been dropping with a dampening of demand and more capacity entering the market in the form of new ships. A return of normalcy for cargo shipping through the Suez Canal would add to that supply/demand problem carriers are facing.
Conclusion
Between security being tenuous and the profitability disadvantageousness for carriers returning container shipping to the region, the answer is no for opening Red Sea shipping back up. At least, it’s no for now. Carriers will take a cautious approach to returning shipping to the Red Sea and Suez Canal. In fact, they have extra incentive to stay away.
Eventually, a return to stability and security through the waters will return container shipping transit to normal volumes. But shippers have to wait longer. Even if full peace is reached in Gaza, that doesn’t necessarily translate to an end in Houthi hostilities. It will take either a complete neutralization of the Houthi’s ability to attack ships or a significant period of time with no more attacks or threats of attack from the Iran-backed rebels for carriers and their crews to feel secure in the Red Sea and Gulf of Aden again.
