RR The Wire 2200Z December 16, 2023

PRECEDENCE: ROUTINE RR

DTG: 220016Z DEC 23

ICOD: 210016Z DEC 23

CONTROLS: Public Release

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BLUF: CONFLICT ESCALATES IN THE RED SEA.

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-International Events-

Red Sea/HOA: Tensions increase as Yemeni forces increase attacks substantially. CENTCOM reports the USS CARNEY (DDG 64) has successfully shot down 14 drones in the past 24 hours. This morning the HMS DIAMOND (D34) also successfully engaged a drone targeting commercial shipping.

South America: Venezuela and Guyana have begun negotiations regarding the Essequibo situation. Negotiations began on Thursday and will likely continue for the next few days. Both parties have issued statements affirming the importance of peace in the region.

-Analyst Comments-

Interestingly and somewhat surprisingly, both Venezuelan President Nicolas Maduro and Guyanese President Irfaan Ali met in person for these initial meetings (which are being held in the neutral archipelago of Saint Vincent and the Grenadines). Normally, diplomats of varying importance take the reins of such similar situations. Having both heads of state take such a direct role in negotiations (at least so far) indicates that both parties understand the severity of this issue. So far, no solid agreement has been reached, and it is too soon to tell if a diplomatic solution is viable at this stage.

Regarding commercial shipping, Maersk’s stock actually increased sharply following yesterday’s report. This comes as investors are optimistic that Maersk (having to take the longer route around Africa), will now be able to charge more for shipping services, leading to presumably increased revenue. However, this assessment is rather short-sighted as global trade depends heavily on both the Panama and Suez Canals. There is a reason as to why the Suez route is one of the most heavily trafficked waterways in the world. In the short term, shipping companies will be able to charge more for cargo services…but in due time maintenance, fuel costs, personnel issues, losses due to weather, and opportunity cost resulting in the sheer lack of hulls themselves are all variables that are hard to predict and will take a toll on profits. If the Red Sea route weren’t the best, most profitable option, it wouldn’t need to exist. Optimism regarding potential profits is gambling that the short-term profits will be able to outweigh the long-term costs. As most financial institutions and markets are very risk-averse in almost every possible way right now, this adds credence to the idea that the global financial sector is divorced from reality when considering the importance of logistics.

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Analyst: S2A

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