Rising Sea Freight Prices in the world and Houthi Threats Add Economic Strain to Israel

In the aftermath of a Houthi attack on a vital sea crossing, sea freight prices from China surge by 12%, impacting Israel's economy.

In recent developments, the Houthi rebels in Yemen pose a significant threat to Israel, not only through direct missile attacks but also by potentially closing a crucial shipping lane – the Bab al-Mandab strait. This strategic waterway facilitates the passage of 6.2 million barrels of oil per day and 10% of global trade.

The threat of maritime disruption has already led to a 12% increase in sea freight rates from China to the Mediterranean Sea in the past week. Shipping companies, particularly those with ties to Israel, are facing challenges, with concerns about the safety of their vessels leading to increased costs. This, in turn, is passed on to consumers in Israel.

The Bab al-Mandab blockade affects not only Israel but also countries in the eastern Mediterranean, notably Egypt, whose budget heavily relies on shipping levies from the Suez Canal. The disruption exacerbates economic challenges in Egypt, currently grappling with poverty and a shortage of foreign currency.

The impact extends beyond immediate economic concerns, affecting inflation rates in Israel. Tradable goods and services, subject to international competition, are experiencing a 2.9% increase, while non-tradable goods, facing little competition, see a higher rise at 4.2%.

The ongoing conflict also raises worries about inflation worldwide, with oil prices currently in retreat due to economic slowdowns in China and Europe. The decision by OPEC+ countries to reduce oil production in 2024 may further contribute to rising energy prices globally, impacting inflation rates in Israel.

In the midst of these economic challenges, questions arise about the Israeli government's actions to mitigate the impact on its citizens. The Electricity Authority's role in managing electricity rates and the potential influence of the conflict in Gaza on gas production from Mediterranean reservoirs are points of contention.

As Israel faces these economic hurdles, its dependence on the United States becomes apparent, not only in countering Houthi aggression but also in military support and financial aid. The geopolitical landscape, shaped by the ongoing conflicts, underscores the intricate balance Israel maintains in navigating its economic future.