Biden’s mishandling of the Red Sea issue could impact his chances in the 2024 election
It’s not Pittsburgh, Penn. or Columbus, Ohio, that will lose the election for President Biden. It’s the Red Sea.
Iran-backed Houthi rebels have disrupted global shipping, and will increase inflation — again — between now and the election.
Shipping volumes have crashed out in the region. In mid-November around 5.66 million metric tonnes of cargo were passing through the Bab al-Mendeb Strait in the Red Sea every week.
By mid-January this had fallen to 2.69 million metric tonnes, a fall of 52%.
For context, during the lockdowns when supply chains were disrupted the volume of shipping through the Strait only fell around 20% — and this was easily enough to spark off inflation.
A similar story can be told about the Suez Canal. In mid-November the canal was accommodating 5.99 million metric tonnes of cargo per week. By mid-January this had fallen to 3.03 million, a decline of 49%.
During the lockdown traffic in the Suez Canal only fell around 23%.
It was only when a container ship famously got stuck in the canal in 2021 that we saw declines in trade volumes of the like we are seeing today — and the ones today are lasting much longer.
This week the Biden administration and its allies launched airstrikes against the Houthi rebels. But it hasn’t made companies any more comfortable.
The morning after the airstrikes were launched at least four oil tankers diverted course from the Red Sea.
Rooting out the Houthi rebels will be difficult to say the least. They are guerrillas and the weapons that they use can be hidden and transported with ease. By the time the US Navy get a target, the Houthi rebel may well have fired his rocket or drone and skedaddled.
But even if the Biden administration is successful at clearing out the Houthis, it will likely take weeks, perhaps months.
Ships that do not pass through the Red Sea have to take the longer route around the continent of Africa. This adds 40% onto the journey time.
There are other hidden costs too. The price of refuelling in Durban, South Africa, is currently spiking.
Some are saying these added costs, and scarcity of goods, will only impact Europe because most of the ships that go through the Red Sea are bound there. But this is not true.
If there is a shortage of shipped goods in Europe, the price of those goods will rise.
This will incentivize ships that were previously destined for other locations — like the United States — to ship to Europe to take advantage of the higher prices.
It is in this way that the entire global shipping market will be affected.
The reality is that the Biden administration cannot take another bout of inflation.
Polling is already showing that voters think they have mishandled the economy. Another increase in prices will destroy the administration’s credibility.
Then there are interest rates. In a surprise — and some say political — decision last month, the Federal Reserve signaled that it might lower interest rates in the run-up to the election.
This would have been a massive gift to the Biden administration as it would have juiced the economy.
But now that another round of supply chain disruptions is in the pipeline it seems unlikely that the Fed can lower rates.
After all, they got the inflation wrong the last time when they said they believed it would be transitory. Their credibility would be completely shot if they got it wrong again.
It is difficult to come to any other conclusion: Biden’s election prospects are being dragged down in the Middle East.
As global tensions rise, expect his poll numbers to fall. And if there is another round of inflation, don’t expect a replacement Democrat to fare any better; the party’s credibility on the economy will be non-existent.
Philip Pilkington is a macroeconomist and investment professional.
