Since 15 December, The Shanghai Containerized Freight Index (SCFI) benchmark, which measures rates for transporting imported goods from China, has risen 161 per cent, from $1,029 to $2,694 – as ships take the longer journey around the Cape of Good Hope to avoid Houthi attacks in the Red Sea.
China has stated its concern about regional instability in the UN Security Council but distanced itself from the US and its allies’ narrow framing of the escalation as exclusively a freedom of navigation crisis.
Instead, China’s deputy permanent representative to the UN, Geng Shuang, interpreted the situation as a direct spillover effect of Israel’s war on Gaza and highlighted that any US-led military response could further degrade stability in Yemen and the wider region.
The Houthi attacks, therefore, allow Beijing to develop its criticism of US policy as fuelling an unjust war and contributing to regional instability. But any escalation of the crisis would also represent a threat to China’s influence in the Middle East, one that could damage its growing interests in the region.
China’s complex calculations
China’s position is influenced by the Houthis’ claim to be targeting only Israeli ships and those bound for Israeli ports.
Even though the attacks have also targeted ships with no ties to Israel, Beijing believes that any political support for the US-led maritime coalition against the Houthis would undermine its support for a permanent ceasefire and peace process in Gaza, antagonize regional populations, and delegitimize its long-term prospects for leadership of the Global South.
China’s trade, meanwhile, is unlikely to be severely affected by the attacks. The Houthis have ignored oil tankers so far and will almost certainly avoid targeting Chinese ships, to avoid embarrassing Iran or instigating a dramatic shift in Beijing’s position.
From a purely economic cost-benefit calculation, shipping costs and insurance premiums shot up, but they are still well below Covid-19 levels.
And China’s exports have lagged since June due to weak global demand. They are expected to remain slow throughout January due to the end of the Christmas season, before picking up again before the Lunar New Year in February.
The cost for Israel seems to be low, too. The Houthi attacks reduced traffic at Eilat port by 80 per cent – but this port handles only five per cent of Israel’s seaborne trade. Again, this permits China to criticize the US-led ‘Operation Prosperity Guardian’ as not so much about protecting Israel’s economy as asserting US power in the region.
The fact that other major Arab states chose not to be involved in the coalition, and that there is still not a UN mandate for it (unlike the anti-piracy military task force in the Horn of Africa, of which China is a part) mean that China sees absolutely no benefit of People’s Liberation Army Navy (PLAN) participation in a security operation against the Houthis.
The unravelling of China’s vision
China also has to acknowledge the concerns of its most consequential Middle East partners, Saudi Arabia and Iran – concerns relating to Yemen’s peace process.
The Houthis want to use the crisis to improve their position in negotiations with the Saudis, gain recognition as a real resistance movement, and assert themselves as a central pillar in Iran’s ‘axis of resistance’.
A US-led military campaign against Houthi targets would harden the Houthi stance, but could also collapse Yemeni peace negotiations. That could provoke a resumption of Houthi missile and drone attacks against Saudi and Emirati targets (a worry which the Saudis have also been privately stressing with the US).
A collapse of the Yemen peace process would undoubtedly throw the China-brokered Saudi–Iran de-escalation process into the abyss.
The return of an intense rivalry between the two countries would, in turn, set back China’s efforts to promote its vision for regional security under its Global Security Initiative: the Iran–Saudi deal is the bedrock of Beijing’s regional vision.
The three likely scenarios for escalation in the coming weeks illustrate how Chinese interests could come under intense pressure.
The US-led coalition could conduct a major military offensive to end Houthi control of al-Hudaydah, a strategic port on the Red Sea, and redesignate the Houthis as a terrorist organization.
Alternatively, it could carry out targeted strikes on the Houthis’ inland missile launching sites, command and control headquarters and naval capabilities.
Both military responses risk triggering a regional war, with Iran’s direct participation – increasing anger among regional populations, as the US will be increasingly seen to be fighting Israel’s war.
Such a scenario would encourage the Houthis to try and block navigation in the strait entirely. In this case, fighting in Yemen – and Houthi missile attacks on Saudi infrastructure – could swiftly resume.
Battle of legitimacies
China may well be pressuring Iran to reign in the Houthis, but will be pleased with the strategic bind the Houthi attacks create for the Biden administration.