Marine War Bulletin

Authors: Mike Ingham Angus Blayney Matt Hodges

Following the 7 October 2023 attack on Israel by Hamas and the commencement of the war in Gaza, there has been a dramatic increase in the activities of the Houthi militia based out of western Yemen. They have launched a campaign to strike merchant shipping traffic passing through the Red Sea and Gulf of Aden, especially in the Bab-el-Mandeb Strait. The rebel group, which is perceived to be a proxy of Iran, considers Israel to be its enemy also, and has claimed the intention of the attacks is to disrupt ships with links to Israel.

During the first incident on 19 November 2023, the Houthis unlawfully seized the commercial car carrier vessel 'Galaxy Leader'. The vessel was boarded via helicopter by armed military personnel, who took control of the vessel and sailed it to the port of Hodeidah, Yemen, where it remains. Following this event, there have been more than 30 further incidents in the form of direct drone and missile attacks, threatening approaches and attempted boardings.

International Response

The international response led by US/UK forces resulted in the establishment of Operation Prosperity Guardian, a multinational security initiative under the umbrella of the US Navy Combined Maritime Forces and the leadership of its Task Force 153, which focuses on security in the Red Sea.

Operation Prosperity Guardian combined a large naval presence from multiple countries, including the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain, to jointly address security challenges in the southern Red Sea and the Gulf of Aden, to ensure freedom of navigation for all countries and bolster regional security and prosperity.

In mid-January, the US/UK joint taskforce began a series of targeted airstrikes against Houthi positions within Yemen in response to the ongoing threat.

Since the intervention by the US/UK task force, the Houthis have indicated that any vessel linked to those countries is also a legitimate target, which began when the US-owned 'Gibraltar Eagle' was struck with a missile on 15 January 2024. Maersk reported on 24 January 2024 that two of their US-flagged vessels 'Maersk Detroit' and 'Maersk Chesapeake' turned around after explosions close by whilst transiting the Bab-el-Mandeb Strait northbound under US Navy escort.

On 26 January, the British registered vessel 'Marlin Luanda' was struck by a missile, which resulted in a large fire, Houthi claimed responsibility and stipulated that it "was (a) targeted in response to "American-British aggression against our country".

Global, Political and Economic Concern

The perceived risk in the Red Sea and Gulf of Aden areas surrounding Yemen has increased exponentially. The region was already recognised as a High Risk Area (HRA) within the Joint War Committee's Joint War Listed Areas (JWLA). This dictates the trading limits for war insurance policies, establishing where additional premiums or coverage restrictions should apply.

The Gulf of Aden/Indian Ocean area has been considered high risk for some time due to historical issues with Somali piracy, the Yemeni civil war, and ongoing conflicts in surrounding countries such as Sudan. The boundaries of the Red Sea listed area have recently been extended northwards, and this new serious threat from the Houthis has become a point of global, political and economic concern. The attacks carried out by the Houthis have been diverse, harnessing the technical and financial support they receive from Iran, as well as specialist military training. They have been able to strike targets with a variety of weapons, as well as board vessels by air and from alongside. They have used ballistic missiles and uncrewed aerial vehicles (UAVs), as well as developing proficiency with drone boat technology.

In early January, a drone boat packed with explosives was launched towards an unknown target before detonating in sight of US warships around 15 miles from its position of deployment.¹ Additionally, the use of ballistic missiles is of grave concern. Vessels attacked include the container ship 'Maersk Hangzhou', which was struck by a missile while travelling through the Bab-el-Mandeb Strait on 30 December 2023. Hours later, it was swarmed by Houthi boats attempting to board and seize the vessel; however, they were deterred with the aid of the US Navy.

At the outset, the Houthis have stated that their aggression is directed towards Israel, and that their attacks are targeted at vessels with links to Israel. This has now been extended to vessels with US or UK links. However, in reality, the opaque ownership and management structures for ships make this complicated to analyse and presents a very real risk of mistaken identity. The Houthis have also indicated vessels which have called to Israeli ports or are due to call there would be targeted. There have already been a number of incidents affecting vessels with no obvious link to Israel or recent port calls.

The Insurance Impact

As a result of the significantly increased risk in the Red Sea and Gulf of Aden area, additional premiums for war risks have risen dramatically. As a high risk area, transits through the Red Sea, Gulf of Aden and Indian Ocean (as defined by the boundaries decided by the Joint War Committee) are subject to additional war risk premiums, which are calculated based on a percentage of the insured value of a vessel.

Prior to the recent spate of attacks, Gulf of Aden/Red Sea rates were relatively inexpensive compared to areas of higher perceived risk, such as the Black Sea, Persian Gulf, and Gulf of Guinea. Average rates could previously be agreed between 0.02% and 0.03%, with potential discounts for the presence of armed guards and/or additional Kidnap and Ransom (K&R) insurance. However, the newly-present threat has pushed insurers to significantly raise the rates, initially towards a market average of 0.3%, but since into the region of 0.75%, which represents an overall 1500% increase. These rates can be even higher in cases where Underwriters identify specific threats to individual vessels and their connections. Many insurers have also withdrawn or reduced previous discounts as well as tightening warranties.

The rates are significantly higher than during the height of the Somali pirate crisis in the same region during the 2008-2014 period. There is also far less scope for war underwriters to rely on a K&R policy in the event of an illegal seizure, largely because there is unlikely to be a monetary ransom demand, and secondly because facilitating any payment to the Houthis would be illegal considering they are a designated terrorist organisation by the US/UK/EU.

Interestingly, since the onset of the current situation in the Red Sea, there have been four separate piracy incidents, including the seizure of the 'Ruen' by Somali pirates, and the unsuccessful attempt to hijack the 'Central Park.'¹ EUNAVFOR has been highlighting that the last confirmed piracy incident in the region took place in 2019. Most of the attacks on commercial vessels had taken place before 2014, with only two vessels seized and released in 2017 and one unsuccessful attempt in 2018. This sudden uptick in activity by Somali pirates is unlikely to be a coincidence, and they could be attempting to take advantage of the general chaos in the region.

Shipping Routes

In order to avoid the risk of an attack, many shipping companies have decided to temporarily suspend all travel through the Red Sea/Gulf of Aden. This is a very significant decision given that the Suez Canal, which provides the optimal trade route between Europe and Asia, is not otherwise accessible. Around 12% of global trade passes through the Red Sea, which is a crucial region for the shipment of oil, liquefied gas and consumer goods.

Data extracted from PortWatch shows that on 18 November 2023, one day prior to the initial 'Galaxy Leader' incident, the seven-day moving average number of vessels sailing through the Suez Canal was 79, this is compared to 73 the prior year. However, data also shows that just shy of two months later, on the 16 January 2024, the seven-day moving average had diminished to 46, compared to 75 the prior year.² These are by far the lowest figures since early April 2021 when the canal was blocked by 'Ever Given', a vessel which was wedged between the canal's banks, blocking the passage.³ The crisis has serious implications for Egypt, which generates a substantial revenue from fees for vessels transiting Suez.

The alternative route around the Cape of Good Hope at the southernmost point of Africa adds an additional 3,200 miles and circa 14 days to a typical journey between Asia and Europe.⁴ In addition to creating severe delays and shortages of goods, this also provokes a much-increased level of fuel consumption and higher emissions. The inflated premiums, longer shipments and increased fuel requirements are likely to spread higher costs throughout the supply chain — a consequence that will ultimately be felt by consumers in the form of inflation.

Shipping companies must weigh up the increased costs and journey times against the risk to their vessels, and, most importantly, the safety of the crew onboard. All types of vessels have been diverted, including containers, tankers, bulkers, and car carriers. There have even been reports of the livestock carrier 'Bahija' being diverted to South Africa instead of completing a journey from Australia to the Red Sea port of Aqaba in Jordan.

Vessels diverting around the Cape is clearly not an acceptable long-term solution. The increased cost will be felt by consumers around the world already suffering from increased cost of living and inflation since the pandemic. Another serious concern is the increased fuel consumption driving oil prices up and generating increased emissions at a time when shipping is under pressure to achieve de-carbonisation goals in the coming years.

The aim of the military intervention by the US/UK taskforce is to secure the safety of commercial shipping in the region. The initial reaction of the Houthis to the US/UK strikes has been to continue and arguably intensify their attacks. We will see over the coming weeks and months whether they are able to neutralise the capability and resolve of the Houthis to continue with their current course of action.

The Gallagher Specialty Marine team understands volatility and is on hand to support clients as they navigate the current complex and developing situation in the Red Sea and Gulf of Aden. Don't hesitate to contact us if you would like to discuss any of the matters raised in this bulletin in more detail.