The Red Sea Situation Is Worse Than It looks
Under-Appreciated Risks Of The Red Sea Crisis
As Zero Hedge reported yesterday, despite the U.S. military's new operation to protect shipping in the Red Sea from Houthi rebel attacks, many cargo ships are switching to the 40% longer route around the Cape of Good Hope in South Africa. Aside from the increased costs to global shipping, and the risk of America getting into a shooting war in the Mideast, there are some additional, under-appreciated risks.
Is The Market Paying Attention?
Although Zero Hedge has been covering this issue prominently, mainstream financial media hasn't been.
Shipping lanes get shut down and the US Navy announce an operation to try to force them open and today there’s nothing on the front page of the major financial publications. Eerie stuff. 🚢 pic.twitter.com/dEpMTgyTGx
— Philip Pilkington (@philippilk) December 19, 2023
What Happens To Egypt?
Our friend Aristophanes makes a good point in his long post on the Red Sea situation, that to the extent Iran is arming the Houthis, who are driving shipping traffic away from the Suez Canal, Iran can exert leverage on Egypt in ways that can make the Israel-Gaza war worse.
This Red Sea situation is very very bad. And while the best person to consult is a logistician, I want to take a laymans stab at it.
— 🏛 Aristophanes 🏛 (@Aristos_Revenge) December 19, 2023
Currently, container ships are being attacked regularly with anti ship missiles and drones via the Houthi's(Iranian Proxies in Yemen). The USS… pic.twitter.com/71exFF3tQh
Here's the key part:
A massive share of Egypts income comes from the Suez Canal. This broke a record in 2022 at 9.4 billion USD, which is almost 30 percent of their annual revenue. If the Suez is closed, they aren't making money.
The Egyptian Government is also stressed from multiple angles. They have a refugee crisis on their border with Sudan, but particularly topical right now is their land border with Gaza. The Rafah Crossing is the only link into Gaza that is not controlled by Israel. Iran having a quarter of the Egyptian economy by the balls unless the US intervenes, means Iran has leverage over what gets into Gaza. If you use your imagination, this could include anything from chemical weapons in Syria, to a dirty bomb or even a nuclear weapon from Iran being not beyond the realm of the possible. This is a nightmare scenario for the US because such an event might force a more tangible military commitment in the region than we already have.
Can South Africa Even Handle The Increased Cape Traffic?
Ernst van Zyl, the head of public relations at Afriforum, points out that South Africa's port infrastructure has trouble handling its current shipping traffic.
The congestion crisis at South Africa’s state-run ports has resulted in cargo ships having to wait 215+ hours at Port Nqura and 32 hours to enter Port Elizabeth port. Meanwhile, the wait to enter the Durban port stood at 227+ hours at the end of Nov.https://t.co/csgk6Iq6e6
— Conscious Caracal 🇿🇦 (@ConCaracal) December 19, 2023
“The average South African [doesn't] realise what a complete and utter catastrophe Transnet is. It is way worse than Eskom (state-run power monopoly)"
— Conscious Caracal 🇿🇦 (@ConCaracal) December 19, 2023
- Wayne McCurrie
https://t.co/boHvO0oFbM
While The Market Ignores This
So far, the market seems unperturbed by the worsening situation in the Red Sea. We've been taking advantage of the current calm to place a few short term technical trades on names that look poised for breakouts in the near term. We placed two yesterday, and have one teed up for later today. If you'd like a heads up when we place it, feel free to subscribe to our trading Substack/occasional email list below.
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