The attack by the United States and the United Kingdom on Houthi positions in Yemen threatens to ignite the powder keg that is the Middle East and open a new fault line in the global economy. The transit of merchant ships through the Red Sea, the main trade artery linking Asia to Europe via the Suez Canal, plummeted in December after assaults by Yemeni rebels intensified. Now, the military escalation is pushing the short-term possibility of a return to normality farther into the distance. It also raises the spectre of an economic short-circuit, whose features are similar to the gap between supply and demand that was experienced after the lockdowns due to the pandemic: bottlenecks in logistics chains, delays in the delivery of goods, suspensions in industrial production, and upward pressures on prices.
The ingredients are similar, except that it is not yet clear whether a regional…
