Iran’s Red Sea Power Play Raises Fears of Trade Disruption

(Bloomberg) -- Iran’s dispatch of a warship to the Red Sea is its most audacious move yet to challenge US forces in the key trade route, emboldening Houthi militants whose missiles have disrupted shipping over the past two months.

Tehran is unlikely to want direct confrontation — its old frigate being no match for the US-led maritime task force patrolling the waters off Yemen — but it takes the projection of Iranian power in the region to another level. That’s raising tensions after the Houthis started attacking vessels they claimed were headed to or owned by firms in Israel in a bid to end the military assault on Gaza. 

Iran has rejected calls from Western powers to pressure the Houthis to end their attacks in the Red Sea. Some of the latest ships targeted by the rebels don’t have clear links to Israel, according to Kevjn Lim, a Tel Aviv-based analyst at S&P Global Market Intelligence. That includes an attack on an AP Moller-Maersk A/S container ship, after Denmark said it was joining the task force.

“They aren’t showing a willingness to deescalate, so we’re likely to see further targeting of commercial assets and US maritime ships going forward,” Lim said. 

In response to the Houthi attacks, some of the world’s biggest shipping firms have refused to transit through the Suez Canal, complicating flows between Europe and Asia and forcing some vessels to take the more costly route around the Cape of Good Hope. Copenhagen-based Maersk and Germany’s Hapag-Lloyd AG said on Tuesday they were extending their pause on passing through the Red Sea.

In a reflection of the gravity of the situation, the United Nations Security Council announced plans to hold an emergency meeting on the Red Sea tensions Wednesday. The attacks pose “a grave threat to international commerce and maritime security,” US mission to the UN spokesman Nate Evans said in a statement.

On Tuesday evening, Houthis fired two anti-ship ballistic missiles from Yemen into the southern Red Sea, US Central Command said in a post on X, formerly Twitter.

Multiple commercial vessels reported the impact of the missiles into the surrounding water, though none reported any damage, the US said. It was the 24th attack in the southern Red Sea since Nov. 19, it added.

“There is a real risk of escalation here and we’ve already seen some of that unfold in the last few days,” said Dina Esfandiary, a London-based senior adviser for the Middle East at the International Crisis Group, referring to the death of 10 Houthi fighters in an exchange with the US Navy Sunday. “The Houthis have made it clear they are not afraid to follow through on their threats.”

On Monday, Iran’s Foreign Minister Hossein Amirabdollahian blasted what he called the West’s double standards on Gaza, accusing the US and its allies of caring more about disruptions to global trade than civilians being killed in Israel’s bombardment of the Palestinian enclave. Israel says its aim is to destroy Hamas, which attacked on Oct. 7 and is designated a terrorist group by the US.

Amirabdollahian’s comments followed a meeting with Mohammed Abdulsalam, one of the most senior figures in the Houthi movement, and talks on Sunday with UK Foreign Secretary David Cameron, who told him Tehran had to rein in the rebels.

“Iran will continue to support the will and desire of the Yemeni people,” Amirabdollahian said. 

Joel Rayburn, a former US diplomat and military commander, said the Iranian leadership has chosen to take bold steps against Israel and the US, including in the Red Sea, as part of a strategy to project its own power in the region.

Still, Iran may be reluctant to enter into a direct war with the US, not least after Washington’s loose implementation of sanctions allowed Tehran to boost oil exports.

“This Iranian destroyer is just for media consumption, targeting a domestic and regional audience — displaying Iran as a regional power capable of deploying naval assets to challenge the US,” said Riad Kahwaji, the Dubai-based head of the Institute for Near East and Gulf Military Analysis. “But it is unlikely that this destroyer will confront the Western warships in the area because Tehran does not want to get in a war with the US.”

Iran’s moves in the Red Sea offer reminders of another vital chokepoint that Tehran has long threatened to disrupt if its interests are imperiled: the Strait of Hormuz that connects the Persian Gulf with international oil markets. That would pose a bigger threat, traders say.

A hypothetical Hormuz closure could see crude prices surge 20% within a month and potentially higher thereafter, according to Callum Bruce, a London-based analyst at Goldman Sachs Group Inc. That scenario appears unlikely, though, as it would probably prompt a more forceful global response, he said.

Even so, the Houthis feel emboldened, benefiting from greater popular Arab support since the Israeli attacks on Gaza, according to Esfandiary.

“If the tit-for-tats get out of control and each side refuses to abide by the other’s red lines, then we have a real powder keg here,” she said.

(Updates with US saying Houthis fired ballistic missiles into Red Sea.)

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