Houthi Control of Red Sea Trade Routes: Economic and Political Implications of the US-Yemen Conflict

Introduction

The recent escalation of hostilities between the United States and Yemen’s Houthi rebels represents a significant geopolitical development with far-reaching consequences for global trade, regional stability, and international relations.

Since late 2023, Houthi control over key maritime passages in the Red Sea has disrupted one of the world’s most vital shipping lanes, prompting a forceful US military response that has intensified under President Trump’s administration.

FAF examines the multifaceted impacts of this conflict on Yemen, the United States, and the broader international community.

The Houthis’ Maritime Strategy and Control of Red Sea Trade Routes

Rise to Maritime Power

The Houthis, an Iranian-backed rebel group that controls Sanaa and northwestern Yemen, including the strategic Red Sea coastline, have transformed from a domestic insurgency into a significant disruptor of global maritime trade.

Their control of Yemen’s Red Sea ports, particularly Hodeida, has enabled them to establish dominion over one of the world’s most critical maritime chokepoints.

Since November 2023, the group has launched more than 40 attacks on commercial vessels traversing the Red Sea and Gulf of Aden, significantly impacting global shipping operations.

In February 2024, the Houthis consolidated their maritime authority by establishing a Humanitarian Operations Coordination Centre to strengthen oversight of Yemen’s waters.

This body, led by senior Houthi official Ahmed Hamid and supervised by Supreme Political Council head Mahdi al-Mashat, determines which shipping companies may pass through these waters and communicates directly with commercial vessels.

Reports suggest the group has begun collecting fees from shipping firms for safe passage, effectively establishing a revenue-generating toll system on international maritime traffic.

Scale and Impact of Maritime Disruption

The Houthis’ maritime campaign has resulted in widespread disruption to global trade flows. Since November 2023, they have attacked over 100 commercial vessels using missiles and drones, sinking two ships and causing the deaths of four sailors.

Major shipping companies have ceased operations in the Red Sea—a route that typically handles approximately 15% of global seaborne trade and 30% of the world’s container traffic—opting for the significantly longer route around Africa’s Cape of Good Hope.

This rerouting has had profound implications for global shipping economics. The additional 12 days in sailing time for vessels traveling from Shanghai to Rotterdam has increased operational costs, extended delivery schedules, and created significant pressure on global supply chains.

As of March 2024, traffic through the Suez Canal and Bab El-Mandeb Strait had decreased by half, while navigation via the Cape of Good Hope increased by 100%.

These longer routes have increased travel distances for cargo and tankers by up to 53%, causing increased CO2 emissions due to additional fuel consumption.

The shipment cost has increased by over a million dollars, excluding the increasing insurance cost.

US Military Response and Escalation

Evolution of US Strategy

The United States, initially under the Biden administration and continuing more aggressively under President Trump, has responded to the Houthi maritime campaign with military force.

US and UK forces began airstrikes on Houthi targets on January 11, 2024, with President Biden characterizing them as a “direct response” to attacks on Red Sea ships that “jeopardized trade and threatened freedom of navigation.”

Since President Trump assumed office, US military operations against the Houthis have intensified significantly.

In March 2025, the US launched what officials described as a “decisive and robust” series of airstrikes against Houthi targets in Yemen.

These strikes, characterized as the most substantial since joint US-UK operations began in January 2024, marked a significant escalation in the conflict.

According to Pentagon officials, these operations targeted a wider array of objectives than those permitted under the previous administration, including Houthi drone production facilities and leadership.

Casualties and Counter-Responses

According to the Houthi-controlled health ministry, recent US airstrikes have resulted in at least 53 fatalities, including children, with approximately 100 others reported injured.

The US has claimed that several Houthi leaders were among those killed, though the group has not confirmed these reports.

In response to these attacks, Houthi leader Abdul Malik al-Houthi has declared that his forces will continue to target American vessels in the Red Sea as long as US strikes on Yemen persist, warning of further escalation.

The conflict shows little sign of abating, with US officials indicating that military operations could extend over the coming weeks.

The Pentagon has clarified that while these strikes aim to diminish Houthi capabilities and secure shipping lanes, the US is not pursuing regime change in Yemen.

Economic Implications

Impact on Yemen’s Economy

The Houthi takeover and subsequent conflict have profoundly reshaped Yemen’s economy. During the early years of the conflict, the Houthis seized foreign currency reserves of $5 billion and Yemeni bank deposits worth approximately $1.9 billion.

Since then, they have established an alternative economic system in territories under their control, introducing 180 oil import enterprises, 250 currency exchange businesses, and 1,023 trading companies—all granted tax and customs exemptions.

This parallel economic structure has severely impacted Yemen’s pre-existing private sector, with nearly 35% of Yemeni businesses having gone bankrupt since the start of the war and more than 51% experiencing reduced operations.

The Houthis generate approximately $1.8 billion annually in revenues, much of which comes from customs fees that have dramatically increased import costs.

Restrictions imposed through newly established Houthi customs checkpoints have led to significant price increases for essential goods in a country where 90% of foodstuffs are imported, exacerbating the humanitarian crisis.

Global Economic Consequences

The disruption of Red Sea shipping routes has produced significant ripple effects throughout the global economy. Shipping costs have surged, affecting global supply chains and industries dependent on timely deliveries.

The situation has led to an immediate contraction in market capacity and rising shipping rates, significantly impacting global trade networks and economic stability.

These elevated shipping costs have inflationary implications for the world economy. OECD estimates suggest that a doubling of global shipping costs, if persistent, would add 0.4 percentage points to consumer price inflation in OECD countries after approximately one year.

The crisis has also increased shipping insurance costs, further contributing to inflationary pressures in global markets.

For the United States, the situation presents both economic and strategic challenges.

Beyond the direct costs of military operations, the disruption of global shipping impacts US trade interests and potentially contributes to inflationary pressures in an already sensitive economic climate.

Political Ramifications

Shifting Power Dynamics in Yemen

The Houthi maritime campaign has significantly strengthened the group’s political position within Yemen and elevated its status regionally.

Despite controlling only part of Yemen’s territory, the Houthis’ ability to project power in the Red Sea has allowed them to establish a global presence and relevance disproportionate to their domestic governance capabilities.

The continued fragmentation of Yemen’s internationally recognized government has further reinforced the Houthis’ political and military dominance.

The Houthis have strategically framed their maritime attacks as acts of solidarity with Palestinians, a position that has resonated across the Middle East and embarrassed Arab regimes whose responses to the Israel-Hamas conflict have been more restrained.

This positioning serves dual political purposes: it burnishes their domestic image by championing the Palestinian cause and demonstrates their commitment to their allies in the Iranian-led “axis of resistance.”

International Alignments and Tensions

The conflict has highlighted and reinforced existing geopolitical fault lines.

The Houthis openly declare themselves part of the Iranian-led “axis of resistance” against Israel, the United States, and Western allies.

President Trump has explicitly associated the Houthis with Iran, stating that “every shot fired by the Houthis will be looked upon as being a shot fired from the weapons and leadership of Iran.”

This characterization has intensified tensions with Iran, which warned of strong retaliation against any threats.

Russia has also entered the diplomatic fray, urging the United States to halt its military actions against the Houthis.

Meanwhile, Gulf Arab nations face a delicate balancing act, potentially distancing themselves from the ongoing hostilities while simultaneously confronting threats to their vital oil infrastructure.

The conflict represents a significant foreign policy challenge for the United States that extends beyond simple maritime security.

The situation tests the administration’s approach to Iran, its commitment to Israel, and its broader Middle East strategy.

The escalation of military operations also raises domestic political considerations regarding military engagement abroad and the potential for unintended consequences or mission creep.

Conclusion

The Houthi control of Red Sea trade routes and the subsequent US military response have created a complex international crisis with far-reaching economic and political implications.

For Yemen, the conflict has accelerated economic fragmentation and humanitarian suffering while paradoxically strengthening the Houthis’ political position.

The United States faces significant strategic and economic challenges that extend well beyond the immediate military confrontation.

For the broader international community, the disruption of vital shipping lanes has produced economic ripple effects that touch virtually every corner of the global economy.

As this conflict evolves, its resolution will require more than military force.

A sustainable settlement would need to address the broader regional dynamics, particularly Iran’s role in supporting proxy forces, while also accounting for the legitimate political and economic concerns of Yemen’s population.

Until such a comprehensive approach emerges, the Red Sea will likely remain turbulent, with continued implications for global trade, regional stability, and international relations.