Beyond Borders: The Israel-Palestine Situation and Its Impact on Global Supply Chains

An escalating international conflict is any supply chain manager’s worst nightmare, and if it’s right in the middle of one of the busiest global trading routes, it's even worse. In a previous article, we discussed how the conflict in Ukraine and the COVID-19 pandemic pushed businesses to the nearshoring model .

Despite being much smaller in scale, the Israel-Palestine conflict has an equal potential to affect the world economy, especially after the Houthis, an Iran-backed Yemeni rebel group, decided to attack cargo ships passing through the Red Sea.

In today’s edition, we’ll explain how the Israel-Palestine conflict and the Houthi attacks have affected global supply chains and what you can do to mitigate the risks and ensure business continuity.

What is happening in the Red Sea?

You may have thought that the recent outbreak of conflict between Israel and the Palestinian group Hamas was a minor, localized conflict that would have little to no bearing on global trade. However, the situation changed dramatically when the Yemeni Houthi rebels, allies of Hamas and Iran, started attacking cargo ships in the Red Sea that were bound for Israel or Europe through the Suez Canal.

A brief timeline of Houthi attacks on cargo ships in the Red Sea

The Houthis have supported Palestine since the beginning of the conflict. At first, they fired rockets, drones, and loitering munitions toward Israel.

However, on November 19, 2023 , Houthi armed forces hijacked the Israeli-owned, Japanese-operated cargo ship Galaxy Leader using a helicopter.

After that, the Hothis’ strategy changed. A campaign of no less than 30 attacks on commercial vessels using missiles, drones, and speedboats began. In this sense, the latest attack was on January 18, 2024, when two anti-ship missiles were launched at the MV Chem Ranger, missing their target.

The Houthis claim they’re only targeting vessels with Israeli ties, but several of their targets have been either European or Asian cargo ships that have nothing to do with Israel or their allies.

Though the attacks have caused no loss of lives and little material losses, they have caused widespread alarm and disruption in the shipping industry, with many companies rerouting or suspending their operations in the region.

The impact of the Houthi attacks on global supply chains

The Red Sea and the Suez Canal are one of the most important shipping routes in the world, as they link Europe, Asia, and Africa.

Being the shortest route between Southeast Asia and Europe, the Suez Canal handles about 12% of global trade and 30% of global container traffic . According to Bloomberg , the war in Ukraine had also revived crude oil traffic through the Suez Canal, which increased by 140% to 3.8 million barrels of oil per day in 2023.

The Houthi attacks have threatened the security and stability of these strategic waterways and have caused significant delays, diversions, and costs for shippers and customers. Today, commercial traffic through the Suez Canal is as low as it was during the 2021 blockage, a crisis anyone working with global supply chains will remember.

Alternative shipping routes

In response to the Houthi attacks, many shipping companies have decided to avoid the Red Sea and the Suez Canal and use alternative routes to transport their goods. However, these alternatives have challenges and drawbacks, as they entail longer distances, higher costs, and lower capacities.

Regardless, most shipping companies today have opted to go around Africa through the Cape of Good Hope.

This recent image of Marine Traffic shows the current state (on January 21, 2024) of commercial shipping traffic in and around the Indian Ocean. Notice the high density of ships is currently taking the much longer route around Africa instead of the Suez Canal.

The problem with the Cape of Good Hope

The Cape of Good Hope route is the most common alternative route for shippers who want to bypass the Red Sea and the Suez Canal. However, this route adds an extra 5,530 miles (8,900 kilometers) to the trip and can take up to two extra weeks to complete.

The delays caused by this longer shipping route and the associated price hikes have already forced companies like Tesla and Volvo to suspend operations in their European manufacturing plants.

The importance of supplier diversification in the face of conflict

The war in the Middle East and the Houthi attacks have yet again exposed the vulnerability and fragility of global supply chains. They have highlighted the need for supply chain managers to diversify their sources and routes of supply, reducing the dependence and risk on a single or few suppliers.

Furthermore, supplier diversification can help supply chain managers:

• Enhance the resilience and flexibility of their supply chains.
• Reduce supply chain costs and risks.
• Improve the quality and innovation of their supply chains.

However, supplier diversification is complex, requiring careful planning, analysis, and execution.

BabelusAI can reduce supply chain risk

If you are a supply chain manager who wants to diversify your suppliers and mitigate the potential impacts of conflicts like the Israel-Palestine conflict, BabelusAI can help. BabelusAI is a leading artificial intelligence platform that provides intelligent solutions for supply chain management.

BabelusAI can help you:

• Find and evaluate potential suppliers from different regions and countries based on technical requirements.
• Cut supplier discovery times by as much as 90% .
• Compare, shortlist, and select the best suppliers for your needs.

Contact us today to discuss how BabelusAI can help you overcome the challenges of supplier discovery and diversification, or schedule a call now to discuss developing a pilot for your company at no cost.