The Red Sea has once again become a flashpoint for global trade disruption.
Yemen’s Houthi militants have released a statement saying the group plans to escalate its attacks on merchant ships, targeting vessels of any company associated with Israel, regardless of national origin, according to a Financial Times report earlier this week.
The threat follows their claim of responsibility for the sinking of the Magic Seas and Eternity C, two Liberian-flagged, Greek-operated cargo ships. The attacks have left at least four seafarers dead and 11 still held hostage in Yemen, amplifying fears across the maritime industry.
In the wake of renewed attacks by the Iran-backed group this month, global shipping routes, supply chains, and insurance markets are under growing pressure.
“The industry has adapted to the new supply chain developments and land routes have been established to maintain trade,” said Jord Oostrom (pictured), chief commercial officer for Aon in the Middle East.
“But the instability in the region due to the Middle East Conflict escalation has the potential to raise energy costs, disrupt supply chains and limit access to fluid trading environments.”
For global commerce, the implications of heightened risk in the sea corridor are profound. The Red Sea and the adjacent Suez Canal account for up to 12% of world trade and are vital conduits for shipments between Europe and Asia.
In response to the heightened risk, many shipping companies are once again diverting cargo around the Cape of Good Hope, a detour that adds significant time and cost.
“Many of the large shipping lines have avoided the Red Sea/Gulf of Aden voyages since 2024 due to the Houthi attacks on vessels passing by,” Oostrom said. “Shipping companies have since rerouted operations across the Horn of Africa and increased security protocols whilst travelling through the Southern Red Sea.”
However, the consequences are reverberating through industries reliant on just-in-time delivery, such as electronics, energy, and food commodities, to name a few.
“In the short term, we will likely see continued volatility in the Oil market due to GCC countries holding a bulk portion of the world’s reserves,” Oostrom said. “This could have a knock-on effect with the possibility of reduced supply that impacts both imports and exports, likely leading to a spike in prices. As we know, the financial markets often see greater volatility as they react to geopolitical instability.”
The marine insurance sector has moved swiftly to adjust. Since late 2023, the Southern Red Sea and Gulf of Aden have been designated high-risk zones.
Following the July attacks, insurers have increased marine war risk premiums, and underwriters have further recalibrated their models based on the growing unpredictability of Houthi targeting.
According to Oostrom, the most affected coverages include:
Premiums have surged for transits through the region, with additional security requirements now common. Some insurers are offering coverage extensions or recommending separation of marine and war risks in policy structures to allow for more tailored pricing and flexibility.
“Underwriters have recalibrated risk in the region and rely upon dynamic pricing with necessary premium adjustments, and coverage changes based upon the evolving geopolitical landscape,” Oostrom said.
“To mitigate risks, we’ve seen governments actively support supply chains and infrastructure and invest in land bridges, air bridges, sea bridges and rail to optimize supply chains to ensure business continuity amid volatility and instability.
“Looking ahead, if key shipping routes such as the Strait of Hormuz or Suez Canal are disrupted, costs will increase, and delays will occur, straining trade relations in the region. Specialized insurance products will likely see additional premiums triggered as the level of risk heightens in the area.
“Elsewhere, Asia-Europe the voyages around the Horn of Africa will reset prices and lead times, which will lead to further inflation and ultimately affect end customers.”
For insurance brokers and supply chain risk managers, the renewed hostilities present an opportunity to help clients proactively manage risk.
According to Aon, companies should approach Red Sea exposure across three core dimensions:
Oostrom emphasized the broader opportunity: “Effective geopolitical risk management is more than protection – it’s a competitive advantage. Companies that maintain delivery capability during crises reinforce their global credibility.”
