Initial inventory of the Yemeni front’s impacts on the Israeli economy

Yemeni maritime operations against Israel have caused severe damage to the Israeli economy, directly affecting the prices of essential and non-essential goods in Israeli society in occupied Palestine and has had repercussions on entire sectors related to transportation, import, and export.

Zakaria Al-Sharabi:

This report examines the effects of the Yemeni operations in their early phases before the fourth phase begins, which is expected to have widespread effects in the coming weeks.

Full stop of Eilat port in the occupied Umm Al-Rashrash area:

The Eilat port represents a vital area for Israel:

According to the yomyom newspaper, in a report published on June 14, the last ship that arrived at the Eilat port, carrying new cars from the east, docked in November 2023. Since then and until today, the Eilat port has stopped operating, as has the Katsa port, which has remained empty of fuel tankers. The damage inflicted on the Eilat port has resulted in a series of setbacks in the transportation and security sectors and has also affected the revenues of the settlements in the Eilot and Eilat areas.

According to the newspaper, the Eilat port was experiencing a severe shortage in storage areas on the eve of the war. As a result, port areas were rented at Ramon Airport, Timna, Yotvata, and Eilat. These areas provided good revenue for the kibbutzim in the Eilot area, as well as for the municipalities of Eilat and Rosh HaNikra. They also gave rise to additional industries in security and cleanliness. Currently, there are only 10,000 cars in the port, and the port administration plans to move them to port areas in order to save on the costs of renting storage areas.

According to the newspaper, Eilat port became (the southern gateway of Israel), which has been promoted for years as a “strategic asset that preserves open sea lanes for Israel,” has suddenly become paralyzed, proving that the international alliance, as well as Israel, has no control or ability to influence freedom of navigation in the Red Sea.

The paralysis of the port of Eilat has affected several economic groups operating in transportation, such as a group called “Taabora,” which until the outbreak of the war operated an active line of hundreds of trucks crossing the border weekly, carrying cars from the port of Eilat to the center. It controlled 70% of car transportation from the port and generated revenues of approximately 3 million shekels per month. Now, their revenues from all activities in the south have decreased by half, as the number of cars the company transports to the port has significantly declined since February of this year.

According to data from the Israeli Navigation Authority, before the outbreak of the war, the port of Eilat received the majority of car imports. In 2023, 149.5 thousand cars were imported through the port, compared to 114 thousand cars imported through the port of Ashdod and 81.2 thousand cars that arrived through the port of Haifa.

Read also: Major maritime shipping companies reveal the extent of the impact of the fourth phase of Yemeni operations.

The paralysis of the port has also affected the employment situation, as there were plans to lay off workers before the labor union intervened to postpone the decision. As a result of this situation, the CEO of the Eilat port, Gideon Gholber, proposed imposing fees on crossing the Bab Al-Mandeb Strait, similar to the fees imposed for crossing the Suez Canal, in order to restore activity at the port. However, this is not feasible.

Gholber stated in an interview with the Globes newspaper in early June that the economic paralysis in Eilat “is not the fault of the port but the fault of the weakness of the coalition countries in dealing with the Houthis.” This issue cannot be ignored despite the war, but there are no solutions, so I am not ashamed to tell customers to pay the Houthis $100,000 to cross the Bab Al-Mandeb Strait, and I will participate in the financing. I do not sleep at night, and if we have to pay the Egyptians to cross the Suez Canal or the Houthis to cross the Bab Al-Mandeb Strait, that is what must be done.

He added, “There has been no work at all for the past seven months. We are now considering dismissal operations because there is no option for unpaid leave in the collective agreement, but there is a possibility of dismissal, and perhaps we have no other choice.”

Gholber had previously stated to the Israeli Calcalist website on April 23 that the port was losing between 6 and 10 million shekels per month due to the cessation of its activities, and there is no hope of recovering this activity. Shipping companies are not willing to trust the coalition countries, and no one is willing to take risks. Additionally, insurance prices are high.

1.2 Price Increases:

The Yemeni operations have not only affected imports to the port of Eilat, but all Israeli ports have been affected. Shipping depends on large ships and the ship transporting containers to more than one country. Shipping companies have preferred to either completely avoid the Mediterranean Sea or stay away from Israeli ports and unload Israeli containers in intermediate transit ports, which forced Israel to bear the costs of shipping from intermediate ports to its own ports. Additionally, rerouting ships through the Indian Ocean imposes additional costs and increases transit times, and the crossing through the Cape of Good Hope, known as the “Cape of Storms,” requires ships to lighten their loads. What used to be carried by 10 ships now needs 11 ships, which increases the size of the costs and delays the arrival of goods to consumers.

Container shipping price increases:

According to the Israeli economic website Globes, the cost of transporting a single container from East Asia to the Israeli ports in occupied Palestine was $1,490 on the eve of the war. In January 2024, it increased to at least $6,773, which is 3.5 times the pre-war level.

While the journey from India to the ports of occupied Palestine used to take a week, it now takes about three weeks. According to Eli Glickman, the CEO of Israeli shipping company ZIM, the longer routes have led to the need for more ships. Glickman told the Global Shipping News website, “For example, if we sail to the eastern Mediterranean, instead of 10 ships for this service, we need 15 ships… This means that we need not only more ships but also more containers because containers spend more time at sea.”

Marine insurance prices have also increased to 1% of the ship’s value, and insurance companies have refused to accept requests for insurance on American, Israeli, and British ships.

Consumers feel the brunt of high product prices:

The rise in shipping costs was a major reason for the increase in product prices in the Israeli entity, as the Hebrew Ynet website revealed that prices have experienced a second wave of increases since the beginning of the war, affecting thousands of products, and the percentage of increase in some products reached 25%.

In a report published in early May, the website stated that companies such as Tnuva, Tara, and Strauss announced price increases for hundreds of dairy products. in addition to price increases for Sunfrost, Coca-Cola, Naviot, Tirat Zvi, and Ednat. For most of these products, this is the second price increase within a year. Therefore, three of the largest food companies in Israel have joined dozens of companies that will raise the prices of thousands of products, and the blow to the pocket is inevitable, and the damage has reached every home in Israel.

The website confirmed at the time that by the end of May, Israelis would have difficulty finding products in supermarkets that have not increased in price, since hundreds of products had already become more expensive at the beginning of the year, and now thousands of other products have become costlier.

The price increase affected all the basic needs of the household food basket.

According to Hebrew media, car prices have also sharply increased. Israeli car importers received a notification from the shipping company “Grimaldi” stating that a significant increase in car transportation prices on dedicated ships from Europe to Israel is expected as of June 15.

According to the Hebrew website Globes, this increase is also due to a sharp 200% increase in “war risk surcharges,” which now amount to 40% of the shipment’s value. The increase is in line with similar increases recorded in the prices of vehicles transported on “Ro-Ro” ships coming from the East since the beginning of the Red Sea attacks. The automotive industry estimates that the final price increase is expected to be around 800 shekels per private vehicle, which is also subject to a vehicle purchase tax. According to the announcement, the war risk surcharge also applies to all types of goods exported from Israel. The industry states that the main meaning, other than the price increase, is that shipping companies from Europe may now avoid docking at Israeli ports.

The website added that since the beginning of the attacks in the Red Sea, many shipping companies, including those specializing in vehicle transportation, have started to avoid crossing the Suez Canal and instead send their ships on the long route around Africa. Most car shipments coming from the East and heading to Israel have been unloaded in Europe and transported from there by shipping companies within Europe, such as Grimaldi. Thus, the additional price increase will also apply to vehicles imported from the East and will be added to the “regular” rate increases from the East. Additionally, Grimaldi is also one of the leading companies in transporting vehicles manufactured in Europe to Israel, including popular Korean models.

Losses that can’t be sustained for the Israeli Potash Company:

The Israeli entity is a leader in potash export, and in March 2022, ICL, the Israeli chemical company, signed a five-year agreement with Indian fertilizer importer IPL. According to the agreement, ICL would supply IPL with 600,000 tons of potash in 2023, with an option for IPL to increase the contract by 50,000 tons and increase the volume to 650,000 tons with an option for IPL in 2024-2027, so that the Indian market will absorb 15% of the Israeli company’s production capacity in occupied Palestine.

When the Yemeni operations began, Israeli exports to the East were severely affected, and ICL was among the hardest hit, losing 15% of its market value during the period October–January.

The Israeli newspaper The Marker reported on January 16 that the Yemeni operations pushed ICL’s stock to its lowest level in three years, as Barclays Bank reduced the target price for ICL’s stock from $6.5 (the previous target price) to $4, which was 13% lower than its price on Wall Street. Barclays estimated that Yemen’s threat to potash marketing to Asia and the price war in the potash market initiated by Russian producers would lead to a 20% decrease in potash sales in 2024.

According to another report in the same newspaper in May, ICL’s revenues decreased by 18% in the first quarter of 2024 compared to the same quarter in 2023, reaching $1.74 billion, which is 2% less than the average analysts’ expectations, and as a result of the decrease in potash prices, the company lost $513 million in revenue.

Regarding profits, the report confirms that ICL’s operating profit decreased by 56% in the first quarter of 2024 compared to the same quarter in 2023. The report attributes 70% of the profit decline to the actual closure of the Bab Al-Mandeb Strait by Yemen, forcing ICL to divert its potash export route to China, India, and Southeast Asia away from the Red Sea and go around Africa.

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