The impact on the global economy is expanding in the aftermath of the war developments between Israel and the Gaza Strip, following direct strikes by the United States and Britain against the Houthi group in Yemen, and anticipation of whether the response will broaden to exceed Israeli and Israel-bound ships.
Navigation continued in the Red Sea prior to these American attacks, as despite several major companies declaring they would avoid the waterway, oil tankers have kept to their usual routes, as well as other shipping companies that simply avoided Israel to pass safely through the Bab-el-Mandeb Strait.
After the United States called upon nations to participate in the formation of the Sentinel of Prosperity Alliance to curb Houthi attacks, the group assured that their attacks only target ships heading to Israel and that there is no need for this coalition, threatening to target commercial vessels of countries participating in the alliance.
The Latest Development
In the latest development in the Red Sea crisis to the south, the US military stated in a press release that it lost two of its navy personnel while conducting operations off the coast of Somalia on Thursday evening, adding that search and rescue operations are continuing to determine their whereabouts.
The US Central Command reported that the sailors were deployed in the area of the Fifth Fleet's operations to support a series of tasks, adding that no further information would be disclosed until the missing individuals are recovered.
According to Reuters, officials have said that the United States carried out an additional strike on Houthi forces in Yemen last Friday, after the Biden administration pledged to protect navigation in the Red Sea.
The most recent strike, which one US official said targeted a radar site, came a day after targeting facilities associated with Iran by dozens of American and British strikes.
After Houthi leaders vowed to respond to those attacks, US President Joe Biden said he might order more strikes if the Houthis do not stop their attacks on commercial and military ships in one of the world's most economically important waterways.
Oil and US Inflation
Brent crude experienced fluctuations since the outset of the American strikes in Yemen, rising from a level of $77.33 a barrel during midday trading last Thursday, in anticipation of strikes against the Yemeni group, to a level of $80.55 a barrel yesterday before retracting to $78.32 a barrel.
The trajectory of American crude followed a similar path, climbing from $71.84 a barrel during midday trading last Thursday to $75.17, before ending last week's transactions at $72.76 a barrel.
The annual US inflation rate resumed its increase last month to 3.4%, exceeding economists' forecasts by about 0.2%.
However, what stood out in the consumer price index released last Thursday was the energy index leading the increases, as it rose by 0.4% on a monthly basis while the food index increased by 0.3%.
The US annual inflation rate had receded during the past November to 3.1% from 3.2% in the previous October.
US stock indices responded to the data by losing most of their gains on Thursday, with nearly sideways performance in the last trading of the week, amid doubts about the possibility of reducing the interest rates adopted by the US Federal Reserve to halt price hikes.
The market anticipates the US interest rates to remain at their current level in the range of 525 – 550 basis points with a 94.8% probability according to the "Fed Watch" performance.
It is worth noting that a rise in US interest rates means more pressure on American economic growth since it raises the cost of borrowing and obtaining financing from banks, thereby curbing the renewal of economic activities. Additionally, it prompts emerging markets to chase interest rates in the world's largest economy to avoid losing external financings that favor US debt instruments with a strong economy and high returns.
War Repercussions
Financial markets expert Jad Hariri explains to Al Jazeera Net that disturbances in the south of the Red Sea lead to higher shipping prices, which ultimately reflect on consumer prices (inflation) that the US Federal Reserve is trying to curb, and this may not leave room for reducing interest rates.
He further states that the markets were expecting a 1.5% cut in US interest rates, but the central bank indicates a reduction of 0.75%.
Regarding the repercussions of the disturbances on the American economy, Hariri says that any such impact, should it occur, would not change investors' outlook on it as the world's strongest economy, considering weak growth in other global economies.
Hariri also speaks about gold, which is seen as a safe haven in times of Red Sea disturbances and is a factor in continuing its price rise. However, it could be negatively affected if the United States maintains its monetary policies to face heightened inflation from the last month.
Overall, Hariri expects the market to take into account the impact of US monetary policy indicators (expected to be negative on gold) more than geopolitical disturbances (which are positive for the precious metal).
In terms of oil prices, Hariri sees the impact of disturbances as a positive factor influencing oil prices; if the Bab-el-Mandeb Strait were to close, it would add to the recent voluntary production cuts agreed upon by the OPEC Plus alliance, potentially bringing the price of Brent crude to about $100 a barrel, and US crude to $98 a barrel.
Should the disturbances south of the Red Sea subside, the markets would then return their focus to OPEC Plus production cuts, demand levels, and economic growth indicators for countries.
