Red Sea disruptions: small impact so far, but a risk to watch

“The impact of Red Sea traffic suspensions is more regional than global, but duration will be the key factor to watch. At this stage, it is no game-changer for our outlook.”

  • Disruptions to shipping via the Suez Canal may impact the economy through two channels: prices and supply chains.
  • Key factors to watch are the duration of the stress and whether disruptions spread to energy goods.
  • With additional uncertainty around inflation, the ECB will be cautious in assessing the next steps.

The intensification of attacks against cargo ships in the Red Sea has led the majority of large shipping companies to suspend transit through the Suez canal. This mostly impacts Asia-Europe trade flows, which need to take the longer and more expensive route around Africa.

So far, the situation is far from a repeat of the Covid crisis, as flows (mostly Europe-Asia trade) are delayed, not interrupted. Currently weak demand in Europe means that higher costs, if short term, are likely to be absorbed by companies rather than translated into higher selling prices.

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