Byron King: Red Sea, Dead Sea

Global Chessboard Puts International Trade in Check [The Rude Awakening] December 20, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Byron King: Red Sea, Dead Sea; Global Chessboard Puts International Trade in Check [Sean Ring] SEAN RING It’s my birthday, and I hadn’t planned on taking today off. I’ve written a piece about what I’m grateful for as I turn 49. For instance, I’m so grateful for my world-class colleagues. And since the one and only Byron King, ace rock kicker, historian, lawyer, and storyteller, decided to elaborate on my piece about the Houthis, I simply had to run it without delay. So, I’ll keep my piece until tomorrow. This article is so much more important. Enjoy! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Central Bank: “Final stage” beginning now]( [Click here to learn more]( The end is near… Our financial system is about to be transformed in a way that would’ve been unthinkable just a few years ago. And almost nobody is prepared for the chaos that follows. According to Bank of America, this overhaul is imminent – And Dr. Nomi Prins says the final stage begins in July, with the rollout of the FedNow system. To show you everything you need to know about the FedNow system – and to help you prepare – Dr. Prins has recorded a free presentation with all the details. It’s controversial, but Nomi’s interview is a must-watch for anyone with more than $2,500 in an American bank or retirement fund. [Click here to find out what you need to do to prepare for this historic transformation](. [Click Here To Learn More]( [Byron King] BYRON KING Let’s follow up on yesterday’s Rude about what’s happening in the Red Sea, where Houthi forces in Yemen have targeted merchant ships. This is an evolving story. And it WILL affect the global economy, all the way down to your wallet. Meanwhile, there’s a profoundly strategic angle here. Truly, it involves the fate of nations, and all of this mess will blow back on us. Pay now or pay later; we’re going to pay. Strap in… Set the Stage: Geography. The quick overview is that a group called Houthis controls part of Yemen, a nation strategically located at the narrow strait at the south end of the Red Sea. Note that Houthis are not the “official” government of Yemen; they just run a big whack of the place. These Houthi actors have begun to attack and seize merchant ships near their Red Sea shores, as well as fire missiles at other vessels, including U.S. Navy ships. Here’s a map to help illustrate the geography: [Rude] Houthis control southern access to the Red Sea. [Map via Washington Post](. U.S. warships carry systems to deal with inbound missiles, although beware the shot that leaks through. But obviously, boardings, seizures, and flying missiles pose great danger to commercial vessels, crews, and cargoes. Thus, several key global shipping firms, ranging from Maersk to BP oil company, have announced that their ships will no longer sail through the Red Sea. This map generally illustrates the problem of geography that it all entails: [Rude] If you can’t sail the Red Sea route, the other way is 40% longer. Sailing around Africa adds time and expense to every voyage, whatever the cargo. And this immediately disrupts global trade. For example, recall the cargo ship that ran aground in the Suez Canal in March 2021. Back then, M/V (merchant vessel) Ever Given, owned by a Taiwanese company called Evergreen Shipping, hit a sand bar in the canal and became wedged. [Rude] Whoops! A 200,000-tonne impediment. [Courtesy BBC](. This incident blocked the canal for over six days. And it disrupted the voyages of no less than 450 other vessels in both directions. Direct damages were in the billions of dollars in excess vessel day rates (i.e., charges to charter a ship), plus “demurrage,” the cost payable to a ship owner for delays in loading or unloading. Meanwhile, the government of Egypt demanded well over a billion dollars in damages from the ship owners for loss of tolls and use of the Suez Canal and costs associated with refloating the vessel. Overall, the logistical effects of this single, accidental event were felt on store shelves in the U.S. in terms of goods delayed in transit due to ships rerouting around Africa or other sorts of delays and expenses. I won’t get deep into further details; just emphasize how blocking navigation through the Suez Canal becomes immediately and globally expensive. Reuters News reads, “About 15% of world shipping traffic, including roughly 30% of global container trade, passes through the Suez Canal. Routing ships around Africa would increase a round-trip journey by about two and a half weeks, cutting shipping capacity and pushing up costs.” So, just with this one example, you can see how Houthis blocking the southern entrance of the Red Sea makes a mess, right? What is REALLY Happening Here? Now comes the next question: Why would the Houthis block ship traffic to and from Suez? What’s really going on? First, this is not just another version of Houthis' high-seas piracy. Okay, sure; they may want payoffs and ransoms to change their behavior because everybody loves to make a few bucks. But what’s happening here goes far beyond just money. The cover story for what Houthis are doing is that they’re in solidarity with the Palestinians of Gaza, currently being invaded and bombed to rubble by Israel, post-October seven military actions by Hamas in that region. In fact, Houthi leaders have declared war on Israel. And they announced that they’ll attack ships headed to or from that nation. Plus, if any foreign navies try to halt the mighty Houthis, they have vowed to turn the Red Sea into a “graveyard.” Sure… it’s a typical bombast, but it’s also never good to have high-explosive drones and cruise missiles flying around. Meanwhile, Houthis have attacked vessels that have nothing to do with Israel; the cargoes originated and are destined to land elsewhere. In any event, Houthis cannot truly blockade Israel just from the south because that country also has a coastline along the Mediterranean (see map above). In other words, Houthis cannot do all that much harm to Israel in terms of strangling trade. But then comes the question: as everything unfolds, who IS being harmed the most? Answer: Egypt. That is, when vessels reroute around Africa, Egypt immediately feels the loss. Egypt loses out on tolls, fees, and other business associated with running the Suez Canal. Tolls speak for themselves: about $7 billion annually to Egypt, over $19 million daily. Fees include payments to canal pilots, the expert navigators required by the government on every vessel in the canal whose services are not being used now. Add innumerable other business opportunities lost at facilities along the canal. These range from selling fuel, fresh water, and food to voyage repairs and removing trash from transiting ships. A lowball number for economic loss to Egypt’s economy is over $25 million per day, likely more when all the secondary and tertiary impacts add up. This matter is hitting Egypt right in the state treasury. Who Is Behind This Global Chessboard? The entire chain of events is convoluted. Houthis are not the legal government of Yemen, but they control territory and claim technically to be at war with Israel. While Egypt, not Israel, is taking the big financial hit. Third-party nations are also suffering because their shipping must take the long route around Africa, costing time and money. The U.S. and other Western nations are now organizing a multi-nation naval mission to defend Red Sea shipping called “Operation Prosperity Guardian.” (Honestly, I have NO idea who thinks up these silly names.) With this in mind, consider a global chessboard. And focus on who supplies the bulk of funds and weapons to the Houthis. Hint: it’s Iran. That is, Iran has long sponsored the Houthis in Yemen and has certainly supplied aircraft, drones, and missiles that Houthis use to attack Red Sea shipping. In this sense, an attack on global shipping by Houthis is an attack by Iran. In terms of second-order effects, closing the Red Sea to shipping is also a financial attack on Egypt, again by Iran. While we’re at it, think back to the original Hamas attack on Israel on October 7. Who is the key sponsor of Hamas? Who armed and trained the Hamas attackers? Yes, Iran. To use a chess analogy, one pawn of Iran has already moved against Israel, namely Hamas. And now, another Iranian pawn – the Houthis – move to block not just Israel but also to harm Egypt and disrupt global trade. Just these two moves alone – by pawns, no less! – have created a complex geographical and strategic quandary. Israel is bogged down in Gaza, fighting Hamas and burning up both its army and credibility on the world stage with Stalingrad-like urban combat. One might say that the Israelis are precisely where the Iranians want them. Meanwhile, Egypt is losing serious Suez Canal revenues. Although Egypt has a powerful military, the country is in no position to fly or sail down the Red Sea and make war on the Houthis. At home, the Egyptian economy will suffer. And considering how Egypt has long been friendly towards the West, this is likely a situation the Iranians are pleased with. Elsewhere in the region, Saudi Arabia shares a long southern border with Yemen. But it’s unlikely that the Saudis will move against the Houthis because Saudi already fought an expensive and unsuccessful war in those parts just a few years ago. Saudi Arabia is amid a rapprochement with Iran after many decades of tension. All this, and now the U.S. and other Western powers are preparing to move militarily and defend against the Houthis. There’s no telling what the exact response will be, although the collective military acumen of the Biden Administration is legendary and speaks for itself; hey, look at how Afghanistan ended or how Ukraine began. If this is a game of chess, Iran just put the U.S. and West in “check.” Undoing the problem will require significant, decisive moves. Looking ahead, and whatever unfolds, the application of serious combat power against Houthis will require significant ships and aircraft, if not land forces. Plus, combat power requires extensive fuel and other supplies, along with transcontinental-scale movement and staging. But wait a second! All those U.S. and other Western military forces and logistic capabilities are badly drawn down after several years of Asia-Ukraine-Middle East tensions. Hmm… I suspect that people are smiling in Tehran. Where Does It Go from Here? As I noted at the beginning, this situation is evolving. And there are many possibilities. One thing is sure: global trade has just hit a major friction point. Hundreds and even thousands of ships are about to detour around Africa. This will slow commerce and increase the costs of everything that moves by ship, including oil and refined products. Along the way, there’s more pressure on Israel to moderate its actions in Gaza, bring its military operations to an end, and deal with the Palestinians. For obvious reasons, expect pressure from Israel’s neighbor Egypt and more pressure from the West just due to the disruption in the trade of oil and other goods. Any significant U.S. and Western military response stresses an already strained body of personnel, equipment, and logistic channels. Any large-scale fighting opens the door to a dark room, namely another military operation in the Middle East with the possibility of drawing in Iran and others. All in all, risks are rising, along with higher oil prices and rising prices for other commodities and goods. Downstream, watch it all fold into eventual inflation. One defense for investors is sticking with Western energy companies with little exposure to Middle East oil imports. They can also go with gold and silver and Western companies that produce the metals. That’s all for now. Thank you for subscribing and reading. Best wishes… [Byron W. King] Byron W. King In Case You Missed It… How About Those Houthis? [Sean Ring] SEAN RING Just close your eyes for a moment and imagine the “War on Terror” never happened. The USG didn’t piss $5 trillion in taxpayers’ funds up a wall. Gas prices are at a level where a $20 bill can get you a full tank of gas. The world still loved and admired America because America wasn’t exporting inflation and “democracy.” America didn’t give in to every Israeli request; there was peace between the US and the Muslim world. OK, you can open your eyes now. The rest of this column will explain what’s happening because the American Military-Industrial Complex couldn’t keep its snout out of the taxpayers’ treasury trough. In short, a bunch of angry goatherders has tied up the Suez Canal, the world’s most important shipping lane and choke point, adding days and millions to the costs of transporting goods across the planet. How’s that inflation looking now? 150 Years of Supply Chain Down the Drain [Zero Hedge]( tweeted:]( Red Sea is now largely closed to traffic. That's 8.8 million bpd of daily oil transit, and nearly 380 million tons of daily cargo transit. Global traffic now will be rerouted around Cape of Good Hope, adding 40% to voyage distance (and even more to cost) [Suez Canal vs] Credit: [@zerohedge]( If you look at the above map, you must travel between the Arabian Peninsula (Yemen) and the Horn of Africa to get to the Suez Canal from Singapore and the East. That waterway is called the Bab al-Mandeb Strait. Let’s get some definitions down first. Bab al-Mandeb Strait: This narrow strait is between Yemen on the Arabian Peninsula and Djibouti and Eritrea in the Horn of Africa. It's a strategic waterway connecting the Red Sea to the Gulf of Aden and the Arabian Sea. Most importantly, it's one of the critical points of access to the Suez Canal, a major global shipping route. Houthi Militants: The Houthis are a Zaidi Shia-led group in Yemen. They have been involved in a protracted conflict in Yemen, which has had regional implications, especially in the context of the broader Saudi-Iranian rivalry in the Middle East. Impact on Global Trade Flows: The Bab al-Mandeb Strait is a critical junction for maritime trade, especially for oil and gas shipments. When shipping companies decide to pause transit through this strait, it can have considerable implications for global trade. Ships would need to reroute around Africa via the Cape of Good Hope, leading to longer transit times and higher costs. This would not only impact but also restructure global supply chains and even contribute to fluctuations in global oil prices due to the delay and uncertainty in oil deliveries. Vasco da Gama is shaking his head right now. Reason for the Pause: The decision by shipping companies to halt transits was primarily driven by security concerns. The Houthi militants' attacks in the area, potentially including missile and naval mines, pose a significant risk to large commercial vessels. The risk assessment for shipping companies involves not only the potential for damage to their ships and cargo but also the safety of their crew. From [The Guardian]( The most immediate effect has been a rise in the cost of insuring vessels that travel through the Suez Canal and Red Sea. Typically, ships must notify their insurers when sailing through high risk areas and pay an additional premium. This risk premium paid by shipping companies was just 0.07% of the value of a ship at the start of December, but has risen to about 0.5%-0.7% in recent days. On Monday, a group of prominent marine insurers also widened the area in the Red Sea they deem to be high risk, meaning more vessels will have to pay the premium. As a result of the cost of shipping goods through the Red Sea has risen by tens of thousands of dollars a week. For most traders however, the risk is too great. In the last week prominent shipping companies including Maersk, Hapag Lloyd, and MSC have decided not to use the Red Sea. According to thinktank the Atlantic Council, seven of the ten biggest shipping companies by market share have suspended shipping in the Red Sea. Some ships are being diverted around the Cape of Good Hope, on the southern tip of Africa, adding up to two weeks in journey time. Lloyd’s of London doesn’t want the risk without massively increasing premiums. In essence, yes, a bunch of goatherders have just stopped world trade. [Secret Gold Back currency RUINING Biden’s plans for a digital dollar?]( [Click here to learn more]( What you see here is a completely new form of money… As we speak, it's being used as an alternative currency across the U.S. minting in places like Utah, New Hampshire and Nevada… And since it’s made out of a thinly printed sheet of REAL gold... It may be the single best way to protect your wealth from Biden’s plan for a government controlled digital dollar. That’s why, we'd like to offer to send one to you today. But since there are a limited number, I need you to respond to [this message]( by Wednesday at midnight. [Watch this short 2 minute message that explains everything here.]( [Click Here To Learn More]( Who Are These Friggin’ Guys? The Houthis, formally known as Ansar Allah, are a Zaidi Shia-led religious-political movement that emerged from northern Yemen in the late 1990s. Their ideology mixes Zaidi Shia revivalism (a branch of Shia Islam predominantly in Yemen) with anti-imperialist and nationalistic sentiments. The Houthis initially fought against the Yemeni government during several wars from 2004 to 2010, and their influence has grown significantly since the Arab Spring in 2011. However, it's important to clarify that the Houthis have not closed off the Suez Canal. The Suez Canal, located in Egypt, is a critical shipping route that connects the Mediterranean Sea to the Red Sea, allowing for direct shipping between Europe and Asia without navigating around Africa. The Houthis' area of operation is primarily in Yemen, which is situated south of Saudi Arabia, bordering the Red Sea but not the Suez Canal. However, the canal is effectively closed because you can’t reach the Suez without going through the Bab al-Mandeb Strait. “If Saudi Arabia & the UAE are part of any coalition to attack Yemen, we will not leave an oil field or a gas field in Saudi Arabia or the Emirates, and we will target all ships transporting oil,” [said Mohammed al-Bukhait, senior political official and spokesman for the Houthis](. The closure of the Suez Canal would have significant global consequences. The canal is one of the world's busiest waterways, facilitating about 12% of international trade. A closure would necessitate the rerouting of ships around the Cape of Good Hope, significantly increasing transit times and costs. This would impact global supply chains, leading to delays in goods' delivery, increased shipping costs, and potential disruptions in global markets, particularly for oil and other commodities transported via this route. This also wrecks Egypt’s finances, which I’ll touch on later. A New Coalition of the Willing? From [The Wall Street Journal]( The U.S. unveiled a multinational naval force to protect merchant vessels in the Red Sea after Houthi rebel attacks threatened the Suez Canal’s central role in global trade. On Monday, the Pentagon said it was establishing a security operation to protect seaborne traffic from ballistic missiles and drone attacks launched by the Houthi groups in Yemen. The effort, called Operation Prosperity Guardian, will include the U.K., Bahrain, France, Norway and other countries. Many of the world’s biggest shipping lines, oil producers and other cargo owners in recent days started diverting vessels from the region, prompting a spike in oil prices and insurance rates. “This is an international problem. And it deserves an international response,” U.S. Defense Secretary Lloyd Austin said in Tel Aviv on Monday. [The cradle] Credit: [The Cradle]( Like the Fed rescues the markets, the US military attempts to protect real asset movement. Egypt’s In Trouble From [Reuters]( on June 21, 2023: Egypt's Suez Canal Authority has seen revenues reach a record $9.4 billion in the current financial year, which ends on June 30, up from $7 billion in the previous year, Chairman Osama Rabea said on Wednesday. "For the first time in the canal's history, the authority has achieved revenues of about $9.4 billion," he told reporters. The chairman added that 25,887 ships have passed through the canal so far in the current financial year, the authority's website cited him as saying at the same conference. He said around 23,800 passed through the previous year. For a country with only $477 billion in GDP, this is a decent chunk (about 2%). This situation isn’t Egypt’s fault, but they’re suffering for it. What will they do with the Rafah crossing? No one knows. Wrap Up What a mess! And it shows how genuinely fragile the world economy is, especially at essential chokepoints. What was once taken for granted will no longer be. The bifurcation of the world economy continues. Do you think things are getting cheaper in the future? Think again. This may just sink Biden’s presidency once and for all. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. 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