The Yemen crisis could deal yet another expensive blow to British consumers with the price of gas spiking by a quarter, a 10 per cent rise in the cost of oil and higher bills in supermarkets.
Russia's invasion of Ukraine was a key factor in the inflation that drove the cost of living crisis, but violence in the Red Sea is causing fresh economic disruption just as inflation is starting to abate.
The RAF launched strikes against Houthi military facilities in Yemen last night in response to a series of attacks on ships in the Red Sea, with Rishi Sunak vowing that the UK would 'always stand up for freedom of navigation and the free flow of trade'.
Additional shipping costs are already being passed onto UK consumers, with an estimated 30 per cent of journeys that would otherwise have used these shipping lanes being rerouted.
And now the Treasury has modelled scenarios which could see oil prices rising by more than $10 (£8) a barrel and a 25 per cent increase in natural gas. Today the price of Brent crude was up by 2% a barrel to $78.94 (£61.81).
Tesco is warning of potential price rises. Next has warned of delays of up to two and a half weeks on deliveries, with most of its stock expected to be affected, as has footwear brand Crocs.
Ikea has warned of shortages of some products, while Tesla has been forced to shut its Berlin gigafactory due to a shortage of components. Elon Musk's company has warned this could lead to as many as 7,000 vehicles not being built. The owner of Volvo and Lotus also fears delays to the delivery of EV models in Europe.
Many carriers are favouring the Cape of Good Hope over the Suez Canal as they try to find a safer passage for their cargo and crew.
This much longer route adds more than a week and 3,500 miles extra to the journey at a cost of £800,000 per boat.
But this is now being used by many of the world's leading shipping firms, including Mediterranean Shipping Company and Maersk.
Transit through the Red Sea, from the Suez Canal to the Bab el-Mandeb Strait, is a crucial shipping lane for global commerce.
About 12 per cent of the world's trade typically passes through the waterway that separates Africa and the Arabian Peninsula, including oil, natural gas, grain and everything from toys to electronics.
Analysts fear the crisis could pass increasing costs on to ordinary customers in stores and at the petrol pump.
Andrew Bailey, governor of the Bank of England, has already warned that the Red Sea chaos could drive up inflation.
Susannah Streeter, head of money and markets at financial services company Hargreaves Lansdown, said: 'Inflationary risks are front and centre again, as the US and the UK and their coalition allies strike targets in Yemen, amid warnings from major companies that shipping delays could see prices ramp up.
'While the military action is aimed at incapacitating Houthi rebel units and limiting attacks on shipping, which has caused such widespread disruption, there is concern that it could lead to a wider escalation of conflict in the Middle East.
'Oil prices have climbed sharply following the attacks, with Brent Crude now around 7 per cent higher since early December, before Houthi rebels began targeting ships in the Red Sea.
'Reports coinciding with the UK/US military action suggest the British government is modelling scenarios which could see prices rise by $10 a barrel, if the Red Sea crisis continues, with gas prices at risk of going up by 25 per cent.
'While its highly uncertain what trajectory energy prices will take, especially given the disruption to trade and the slowing global economy, risks of further price rises will be monitored closely by central bank policymakers.
'With major manufacturers and retailers warning of significant delays to products and components, the price of a vast range of goods threatens to march upwards again.
'While consumers have become used to a shortage of products on shelves, particularly given the pandemic experience, the prospect of prices rising as well will be harder to bear, particularly given the pain of inflation of the past two years.'
The former head of the British Army has further warned that the conflict has laid bare the 'fragility of world supply chains'.
General Lord Richard Dannatt said that the UK had a responsibility to step in to protect world trade.
'Lets not forget that the UK and the US are five of the permanent members of the UN Security Council, so there is a responsibility for those permanent members to take action to protect our world interests,' he told the BBC.
'And in this case the fragility of world chains of supply are being exposed by what is going on in the Red Sea.
'And therefore it does make sense that action is taken to ensure that world trade can continue, prices don't soar up, production and retail can continue as much as possible.'
Companies have already seen their operations affected by the shutdown - with Tesla announcing a two-week shutdown of its Berlin gigafactory due to a shortage of components.
Pausing their production of the Model Y SUVs this could mean as many as 7,000 vehicles are not built.
And Tesco's managing director yesterday said prices could go up after disruption in the Red Sea.
He said: 'If they do have to go the whole way around Africa to get to Europe, it extends shipping times, it constrains shipping space and it drives up shipping costs.
'So that could drive inflation on some items, but we just don't know.'
And high-street retailers including Next, Ikea and Crocs have warned that their products could face delays and availability constraints if the situation continues.
It comes after Whitehall calculations suggested shipping disruption could already caused inflation to rise to 0.5 per cent, the Independent reports.
Brits were handed a huge boost last month as figures revealed inflation dropped to 3.9 per cent in November.
The figure fueled hopes that the Bank could start cutting interest rates sooner than anticipated - as well as giving Chancellor Jeremy Hunt more wriggle room for tax cuts.
But in an appearance in front of the Treasury Committee earlier this week, Bank of England governor Andrew Bailey said: 'We've certainly seen - as best we can tell from the monitoring - shipping traffic is being affected and is being rerouted. That will increase shipping prices and shipping costs. I think initially that will be an issue in the monetary policy world.
'I would say one of the things, fortunately, that hasn't happened is that we have not had a prolonged spike in oil prices.
'We had a bit of an initial spike and at the moment we're seeing that, if anything, the oil price is actually coming down a bit, and there seems to be some price management to keep it there.
'This is very helpful because clearly quite a bit of the shipping traffic that goes through those straits and through the Suez Canal is oil, oil and liquefied natural gas.
'We have to watch it very carefully, though, because it is obviously having an effect.'
Government statements have mirrored fears for trade in their decisions to strike at Houthi targets, with Rishi Sunak saying: 'Despite the repeated warnings from the international community, the Houthis have continued to carry out attacks in the Red Sea, including against UK and US warships just this week.
'This cannot stand. The United Kingdom will always stand up for freedom of navigation and the free flow of trade.
'The Royal Navy continues to patrol the Red Sea as part of the multinational Operation Prosperity Guardian to deter further Houthi aggression, and we urge them to cease their attacks and take steps to de-escalate.'
Defence Secretary Grant Shapps added: 'The threat to innocent lives and global trade has become so great that this action was not only necessary, it was our duty to protect vessels & freedom of navigation.'
Marco Forgione, director general of the Institute of Export and International Trade, has previously said goods from countries including Bangladesh, Vietnam, Thailand, Japan and Australia will be hit by the shipping disruptions, as tankers seek to avoid the Red Sea.
He warned the knock-on effects on consumers would start to be felt within days with supplies of essential items such as meat, clothes, shoes, Australian wine and electronic goods such as mobile phones, impacted.
He told MailOnline: 'The ripple effects of these shipping disruptions will become apparent to consumers within a matter of days.
'The Bab al-Mandab strait serves as a crucial passage, facilitating nearly 30 per cent of containers carrying consumer goods.
'Should ships be unable to navigate through this route and resort to the longer Cape of Good Hope route along the African west coast, it spells significant delays in stocking supermarket shelves and also high street stores, with essential products.
'Items from Bangladesh, Vietnam, Thailand, Japan and Australia will all be impacted. Expect shortages in items ranging from clothing, shoes to shellfish, meat and mobile phones, cars, wine and tobacco.
'Britain relies heavily on clothes produced in Bangladesh - they make up 91.9 per cent or £3billion of goods imported to the UK, fish and shellfish from this country will also be impacted, we currently import to the value of £42.1million.
'The top five goods imported to the UK from Vietnam this year see telecoms and sound equipment and footwear take the top two spots.
'High street sandwiches and frozen foods will also be impacted by any delays as meat is our number 1 import from Thailand and makes up £541.7million or 19.3 per cent of all UK goods imported from the country.
'We rely on Japan for cars, they make up £1.3billion or 14.4 per cent of all UK goods imported from the country.
'You could find your favourite Australian tipple is missing from the supermarket shelves - beverages and tobacco from Australia make up £258.3million or 12.5 per cent of all imports to the UK. Kenyan tea and coffee, South African grapes, and Vietnamese nuts will also be impacted.'
The Ministry of Defence said coalition forces identified key facilities involved in the rebels' targeting of HMS Diamond and US Navy vessels on Tuesday 'and agreed to conduct a carefully coordinated strike to reduce the Houthis' capability to violate international law in this manner'.
Explosions were heard in the capital Sana'a and other major cities including Hodeida and Saada shortly before midnight on an evening where tensions in the Middle East escalated drastically, with US officials admitting they were expecting a response from rebels.
More than a dozen sites were bombed by Western forces, in raids which included submarine-launched Tomahawk missiles and fighter jets.
The four RAF Typhoons used Paveway IV guided bombs to 'conduct precision strikes' on two targets that had been chosen to 'reduce the Houthis' capability to violate international law'. They were assisted by an RAF Voyager refuelling plane.
One of the targets was a launching site for reconnaissance and attack drones in Bani, north-western Yemen. Another was an airfield in Abbs in the same area of Yemen.
US defence secretary Lloyd Austin said the airstrikes also targeted sites associated with the Houthi's unmanned drone, ballistic and cruise missile, coastal radar and air surveillance capabilities.
Officials said the Houthi rebels, who have carried out a series of attacks in the Red Sea to disrupt shipping, had ignored a 'final warning' as Mr Sunak signed off on the raids during an emergency cabinet meeting last night.
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2024-01-12 08:01:13Z
CBMie2h0dHBzOi8vd3d3LmRhaWx5bWFpbC5jby51ay9uZXdzL2FydGljbGUtMTI5NTUxNjcveWVtZW4tYWlyc3RyaWtlcy1icml0aXNoLXN1cGVybWFya2V0LXByaWNlLXJpc2UtY2FyZ28tc2hpcHMtZGl2ZXJ0ZWQuaHRtbNIBf2h0dHBzOi8vd3d3LmRhaWx5bWFpbC5jby51ay9uZXdzL2FydGljbGUtMTI5NTUxNjcvYW1wL3llbWVuLWFpcnN0cmlrZXMtYnJpdGlzaC1zdXBlcm1hcmtldC1wcmljZS1yaXNlLWNhcmdvLXNoaXBzLWRpdmVydGVkLmh0bWw
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