A GLOBAL ECONOMIC CRISIS

The Bab al-M a n d a b Strait connects the Red Sea with the Gulf of Aden and the Indian Ocean and is a critical trade artery handling nearly 12% of global trade, 30% of Asia-Europe container traffic, and nearly 10% of seaborne oil and gas shipments.

The strait remains the only gateway to the Red Sea and Suez Canal. Threats and attacks in the strait can force commercial vessels and oil tankers to reroute around Africa’s Cape of Good Hope, adding weeks of travel time and higher costs.

The strategic importance of this strait increased dramatically because of Iran’s closure of the Strait of Hormuz amid the 2026 Iran war. After the closure of Hormuz Saudi Arabia was forced to rely far more heavily on its Red Sea export route for supply of crude and gas to America, Europe and African countries.

World trade experts estimate that between March and mid-July 2026, Saudi seaborne crude exports through Bab al-Mandab were eight times higher than during the same period in 2025. Though, Houthi control just 33% of Yemen’s territory, but the Northwest region under their control is highly strategic and densely populated containing up to 80% of country’s population.

The capital Sanaa and vital ports are located in the area under control of Iran sponsored Houthi. Last month, the Houthis launched a surprise offensive along Yemen’s South-Western Red Sea coast and quickly ousted pro-government forces from areas overlooking the Bab al-Mandab Strait, including Dhubab, Mokha and Perim (Mayyun) Island.

My knowledge & understanding as an observer of geo politics say that under international law, both the Strait of Hormuz and the Bab al-Mandab are legally classified as international straits where “transit passage” guarantees free, unimpeded navigation for all traffic.

However, in practice, neither waterway is currently free for all traffic due to ongoing military conflicts, unilateral blockades, and targeted regional hostilities. While international frameworks require these critical maritime corridors to remain open to the global commons, geopolitical realities have severely restricted commercial operations.

As of now, Bab Al Mandab has seen its traffic severely degraded and crippled. Blocking one of the world’s most critical maritime chokepoints has multi-dimensional repercussions on the global economy. While the broad economic fallout is spiked inflation, heavily disrupted supply chains, and compounding pressures on global energy markets, there are other economic concerns as discussed below.

Due to disruptions, most major carriers (such as Maersk and MSC) have completely abandoned the Red Sea route, diverting vessels around Africa’s Cape of Good Hope. This adds 10 to 14 days of extra travel time and up to 3,500 extra nautical miles per voyage.

The long detour burns massive amounts of fuel and in my personal calculations, absorbs roughly 8% of global fleet capacity. Adding to this is the War Risk Insurance premiums which have surged dramatically from $150,000 to $500,000 per single voyage. Saudi Arabia had previously mitigated issues in the Strait of Hormuz by rerouting oil through its East-West Pipeline to Red Sea ports.

However, the Houthi takeover of the strait has severely crippled Saudi energy exports, forcing the kingdom to cancel key shipments to Europe. Heavily reliant Europe on the Asia-Europe maritime corridor now faces a -0.9-percentage point drop in GDP growth and a +0.7-percentage point bump in inflation, driving up business bankruptcies.

Not only Europe, the economic damage of the war is highly unequal, hitting low-income and transit-dependent nations the hardest. Egypt’s Suez Canal revenue has plummeted by 35 to 40% which means a multi billions of Dollars hit on their economy annually because ships cannot reach the canal from the south.

Coupled with this catastrophe is, Central banks worldwide had to adjust to this energy-driven inflation shock.

For instance, expected interest rate cuts by the Bank of England and other banks have been derailed, keeping borrowing costs higher for longer to combat stubborn, supplyside inflation.

Our India is also not untouched. Bab al-Mandeb poses a direct, multi-billion-dollar threat to the Indian economy, placing a severe strategic squeeze on its foreign trade and energy costs.

Approximately 35% of India’s total foreign trade, valued at an estimated $450 billion, historically transits through the Red Sea corridor.

Because the route is compromised, the structural shock is cascading through multiple sectors of the Indian economy including a major squeeze on our currency. Unless “operation Dawn of Yemen”, coalition Air strike and US CENTCOM succeed in over powering Houthi forces, relief to world trade is less likely in near future.