In the past two weeks, the United States has carried out at least 10 airstrikes against Yemen's Houthis, who have retaliated with further attacks on ships in the Red Sea. The Biden administration insists a “sustained campaign” of strikes is now needed to protect the continued flow of global trade.
“These attacks, particularly the unprecedented use of anti-ship ballistic missiles, significantly disrupted freedom of commerce and rights of navigation in one of the world's most important waterways,” a senior Pentagon official said on Monday.
There is some data that supports this argument. The Houthis have so far hijacked one ship and carried out at least 34 attacks, none of which resulted in casualties or major damage to ships. Some analysts say 90% of the container ships that normally pass through the Suez Canal are now circumnavigating Africa.
The disruption also led to a 1.3% drop in world trade last December, and uncertainty over Red Sea shipping has made it increasingly difficult to obtain international aid for Sudan. Even China, which is not technically an ally of the United States, is seeking de-escalation of tensions in the Red Sea to get shipping back on track.
But do the Houthi attacks really pose a serious threat to global trade, as the Biden administration claims? If so, is that a good reason to risk further escalation by bombing the Houthis when less risky options are still available?
RS asked these questions to Eugene Holtz, a political science professor at the University of Notre Dame and an expert on the relationship between economic policy and national security. The following conversation has been edited for length and clarity.
RS: In a recent article for the Cato Institute, you wrote that “the cost of diverting ships from the Red Sea is not that important in the grand scheme of the world economy.” Can you elaborate on this discussion?
Goltz: It's easy to talk in percentage terms about huge increases in fuel and labor costs. Prices can go up 100% and shipping costs appear to have increased significantly. However, these costs are actually very small compared to the cost of cargo on an average cargo ship. It costs millions of dollars to fill a medium-sized container ship with fuel. Needless to say, circumnavigating Africa without going through the Red Sea would only add millions of dollars, even if fuel costs doubled. If he writes off $1 billion in cargo value on an average container ship, the change in the cost of shipping the product to consumers is very small.
If there are two shipping lines and one of them requires double the cost of fuel as the other, there will be a significant competitive effect on the liner industry rather than on the industry of the cargo being transported. If the cost of fuel for everyone in the shipping industry went up because everyone was sailing through Africa, or if the cost of transportation went up for everyone because they were paying slightly higher premiums to go through the Red Sea, that It has no competitive effect. in the shipping industry. And the impact on the cost of consumer products is so small that it won't have a major impact on the consumer market.
RS: Is there any data yet on how this is impacting the global economy as a whole? Or is it just an increase in prices for the average person?
Goltz: If you're trying to find an effect, you need very detailed data. I've seen articles about consumer prices rising in recent months. The Red Sea issue is happening, but that's not the only thing happening in the global economy, right? It is not reasonable to isolate the cost impact of navigating or avoiding the Red Sea from all other impacts on the global economy. What you need to do is, rather than looking for a very straightforward outcome measure of world average prices, consider directly measuring the marginal increase in costs due to Red Sea disruption or alleged adaptation. .
RS: Do you understand how much this operation costs the Department of Defense and how it impacts our stockpiles?
Mr. Goltz: Military operations are very expensive. This is far more expensive than the cost of surviving shippers' adaptation to the Houthi disruption. And that's much more expensive than the amount of money the Houthis are spending trying to cause as much disruption as they can, which is very minimal.
The Department of Defense has released numbers regarding the current US budget discussions. Since October, it has spent $1.6 billion on the mission. That's an interesting number. This includes significant operating and maintenance costs, such as fuel for ships and aircraft operating in the Red Sea. They use more food, fuel, and maintenance.
But the main cost is their weapons, which are not included in the $1.6 billion budget currently being debated in Washington. We may launch multiple missiles to intercept one incoming Houthi missile, or launch multiple missiles to attack one Houthi target to reduce the Houthi missile launch capabilities. It might launch a missile or drop multiple bombs. Let's say each missile we launch costs more than $1 million. It adds up.
Let's say we hit the Houthi radar. Well, Houthi radar is cheap. Some of their radars appear to be modified civilian commercial radars that you can get at Bass Pro Shops for boating trips. They cost him thousands of dollars each, but we hit them with missiles that cost millions of dollars. This is a bad cost trade-off.
There are also risks. If this kills some Americans, or if the Houthis get lucky and actually hurt someone, it will be a huge cost. It would be incredibly costly if the US were to become further drawn into the political turmoil in Yemen, or if US hawks were to realize their wildest dreams and use this to force the US to attack Iran. Become.
RS: What would be the economic impact if this spread across the Red Sea into the Persian Gulf?
Goltz: Again, the costs of our possible responses are much higher than the costs of economic disruption. I have done a lot of research on the actual limits of Iran's military ability to disrupt shipping in the Persian Gulf. If the Iranians just shoot up oil tankers and container ships in the Persian Gulf, they are not a major threat to the world economy, and they don't need to unless we panic and overreact. But the costs of war with Iran are potentially enormous.
There are many potential steps between a full-scale regime change war and the probably economically effective response of doing nothing. There are relatively low-cost responses, but they are probably not the U.S. response, even if they are more effective on a cost basis.
RS: How do you respond to those who argue that the United States has an important responsibility to protect global trade flows?
Goltz: Well, we're not responsible. Even though there is no major threat to global commerce, we have chosen to assert that mission for ourselves. And we're not really protecting global commerce. It is not a convoy system in which commercial cargo is delivered around the world and escorted by American frigates. This is not a competition between Britain and Spain for a treasure fleet that led to the Spanish Armada.
Shippers constantly make daily decisions about which routes to take, which risks to accept, and which cargo to carry or not carry. They don't think about the role of the US military in them. The US Navy is a large military, but not everything is everywhere at once. Shippers act on their own.
If we believe that gunboat diplomacy can address a particular threat to commerce, the question to ask is: Is the cost to world commerce worth it for the United States? Want to try responding?
There is an argument that when making that decision, the United States should consider only the cost of disruption to the United States and the cost that the United States would have to pay to prevent it. There is also an altruistic view that since our country is a dominant world power, we should consider the cost to the world economy. If it doesn't cost us that much, we should gracefully and compassionately provide the world with services that protect world commerce. But even if we think the United States should provide this global public good, that does not make every possible action effective and wise.
RS: What would a better approach look like?
Goltz: A better approach from the beginning would have been to allow shippers to make rational decisions about whether to go through the Red Sea or around Africa. Basically, the Houthis should be left alone. If they make a few ineffective attacks that don't actually hurt anyone, it's not worth responding to.
Yes, I think it would be better for the Houthis not to do this. If we ignore it, it will probably disappear. It might not happen. But it doesn't cost much to leave it alone. The right response is to leave that job to the people whose job it is to make decisions about ship routes, insurance rates and risk assessments, and when to bring various products to market. This is their daily routine. Many of them are good at it.
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