Shipping insurance premiums in the southern Red Sea have doubled as Houthi attacks continue to disrupt one of the world's busiest trade routes. The Bab al-Mandab Strait, a narrow chokepoint connecting the Red Sea to the Gulf of Aden, is effectively closed as of September 30, according to a prediction market that puts the probability of closure at 23%.
The cost of insuring ships
Insurers have jacked up rates for vessels transiting the southern Red Sea after a series of Houthi strikes on commercial shipping. The attacks, which began in late 2023, have forced many carriers to reroute around the Cape of Good Hope, adding weeks to voyages and millions in fuel costs. For those still willing to risk the passage, insurance premiums have doubled, reflecting the heightened danger.
The Houthis, a Yemeni rebel group backed by Iran, have targeted ships they claim are linked to Israel or its allies. The group's attacks have included missile and drone strikes, as well as hijackings. The most high-profile incident was the seizure of the Galaxy Leader in November 2023, a cargo ship with ties to an Israeli businessman. The vessel and its crew remain in Houthi hands.
A key waterway at risk
The Bab al-Mandab Strait is a vital artery for global trade, carrying roughly 10% of all seaborne oil and a significant share of container traffic between Asia and Europe. The prediction market's 23% probability of effective closure as of September 30 suggests that traders see a real, though not certain, chance that the strait becomes impassable for commercial shipping. That would force all vessels to take the long route around Africa, straining supply chains and pushing up costs for consumers.
Shipping companies have already begun to adjust. Maersk, the world's second-largest container line, suspended Red Sea transits in December 2023 after one of its vessels was attacked. Other major carriers followed suit. The rerouting has added about 10 days to typical Asia-Europe journeys and increased fuel consumption by roughly 40%.
What the probability means
The 23% figure comes from a prediction market, where traders bet on the likelihood of events. It is not a forecast from a government agency or a think tank, but it reflects the collective judgment of market participants who have money on the line. The number has fluctuated as attacks ebb and flow, but it has remained elevated for months.
For insurers, that probability translates directly into premiums. The cost of war risk insurance for the Red Sea has surged, with some reports indicating a doubling of rates since the start of the Houthi campaign. The higher premiums are passed on to shippers, who in turn pass them on to consumers. The longer the disruption lasts, the more entrenched these costs become.
The Houthis have shown no sign of backing down. They have said they will continue attacks until Israel ends its military operations in Gaza. Diplomatic efforts, including U.S.-led naval patrols and strikes on Houthi positions, have not stopped the group from launching new attacks. The strait remains open in a technical sense, but the effective closure — driven by insurance costs and carrier decisions — is a reality for many shippers.
How long the situation persists is the open question. The prediction market's 23% probability for effective closure as of September 30 suggests that traders see a meaningful chance the strait stays effectively shut for the foreseeable future. For now, shipping companies and insurers are watching the Red Sea closely, waiting to see if the Houthis will escalate or if a diplomatic solution can emerge.
