Mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea are disrupting maritime trade as leading global freight firms reroute around the Cape of Good Hope to avoid the Suez Canal.

The group said it launched a drone attack on two cargo vessels in the area on Dec. 18, the latest in a series of missile and drone strikes on shipping which it says are a response to Israel's assault on the Gaza Strip.

Several major freight companies—including MSC—have begun to sail around Africa instead, adding costs and delays which are expected to be compounded over the coming weeks, according to industry analysts. About 15% of world shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia.

The war between Israel and Hamas, which began on Oct. 7, has sent shockwaves through the region and threatened to cause a broader conflict.

The Red Sea attacks have showed the ability of Middle Eastern paramilitary forces backed by Iran to upset global trade at a time when Tehran and its proxies are positioning themselves against the United States and Israel.

Combined, the companies that have diverted vessels "control around half of the global container shipping market," ABN Amro analyst Albert Jan Swart told Reuters. "Avoiding the Red Sea will lead to higher cost due to longer travel time," Swart said.

Oil major BP temporarily paused all transits through the Red Sea. Oil tanker group Frontline said on Dec. 18 its vessels will avoid passages through the waterway, signs the crisis was broadening to include energy shipments. Crude oil prices rose on those concerns on Dec. 18.

"War risk insurance premiums are on the rise naturally, but as vessels gets re-routed around Africa shipping supply will be tighter as cargoes travel longer," Frontline CEO Lars Barstad told Reuters. "That would put rates under a strong upwards pressure."

Later on Dec. 18, Norwegian energy group Equinor said it had rerouted "a few ships" carrying crude oil and liquefied petroleum gas (LPG) away from the Red Sea. The company declined to say how many vessels were affected.

Tanker firm Euronav said it was avoiding the Red Sea until further notice.

The Houthi attacks were also forcing companies to rethink their connections with Israel, with Taiwan's Evergreen Marine saying on Monday it had decided to temporarily stop accepting Israeli cargo.

'Serious threat to international trade'

The shipping attacks have prompted the U.S. and its allies to discuss a task force that would protect Red Sea routes, a move that U.S. and Israeli arch-foe Tehran has warned would be a mistake.

Visiting Israel on Dec. 18, U.S. Defense Secretary Lloyd Austin said no group or state should test America's resolve.

"In the Red Sea, we're leading a multi-national maritime task force to uphold the bedrock principle of freedom of navigation," he said.

Norway and Italy were mulling joining the Western task force, officials from both NATO members said. Denmark's Defence Minister Troels Lund Paulsen said Copenhagen would "participate" in helping provide security, without elaborating.

Some observers pointed out that despite the Houthi group's claim to be hitting only Israeli-linked vessels, their targets include ships not headed to or affiliated with Israel.

"The Houthi—and by extension their main military backer Iran—are probably using their strike capability in the Red Sea to further exercise greater geopolitical influence in the region, in addition to influence on Israel's war in Gaza," said Jack Kennedy of S&P Global Market Intelligence.

Knock on delays, higher prices

The effects include significantly slower shipments and potentially higher prices for consumers, analysts said.

Rico Luman, an analyst at ING, said the diversions were adding at least a week of sailing time for container liners. Typically, shipping goods from Shanghai to Rotterdam takes around 27 days via the Suez Canal.

"This will at least lead to delays in late December, with knock-on effects in January and probably February as the next round will also be delayed," Luman said.

The disruptions would likely affect supply of consumer goods ahead of the Chinese new year in particular, with delays leaving retailers with unsellable stock and ultimately driving up prices for consumers, said Marco Forgione, director general at the Institute of Export and International Trade.

While freight rates will likely increase on these longer voyages too, carriers at the moment are seeking ways to utilize excess capacity, said Zvi Schreiber, CEO of global freight platform Freightos.

"It is unlikely that rates will spike to levels experienced during the pandemic," said Schreiber, referring to the economic effects of COVID-19 from 2020.

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