THE RED SEA

Missiles close the world's busiest shortcut, and the West strikes back at the Houthis

A Yemeni militia firing at ships has forced much of global trade to sail around Africa. This fortnight the United States and Britain hit back, and a regional war crept wider.

The United States and Britain launched airstrikes against the Houthi movement in Yemen on January 11 and 12, hitting dozens of targets in response to weeks of Houthi missile and drone attacks on commercial ships in the Red Sea. The Houthis, an Iran-backed group that controls much of Yemen, say they are attacking vessels linked to Israel in solidarity with Gaza; in practice they have fired on ships of many nations passing through the Bab-el-Mandeb strait, the narrow gateway to the Suez Canal through which about 12 percent of global trade normally flows. The result, even before the strikes, was a slow-motion shock to the world's supply chains: the largest shipping lines diverted their vessels around the Cape of Good Hope, adding ten days and thousands of miles to the journey between Asia and Europe, raising costs and reviving the spectre of the delays that snarled the pandemic.

The strikes mark the widening everyone feared when the Gaza war began: a regional conflict spreading outward from its centre, drawing in the United States, Iran's proxies from Yemen to Lebanon to Iraq, and the arteries of global commerce. The Houthis vowed to keep attacking; the strikes, by the admission of Western officials, are unlikely to stop them quickly. And the deeper lesson is an old one made new: that the modern economy runs through a handful of narrow physical chokepoints, the Suez, the Panama Canal, the Strait of Hormuz, and that a determined group with cheap drones can put a hand around one of them and squeeze, and the whole just-in-time machine, built for a calmer world, feels it in a fortnight.

TAIWAN

Voters defy Beijing and elect the candidate China warned them against

Taiwan elected Lai Ching-te of the Democratic Progressive Party as its next president on January 13, defying explicit warnings from Beijing, which regards the island as its territory and Lai as a dangerous separatist. Lai, the current vice-president, won a three-way race with about 40 percent of the vote, giving his party a historic third consecutive presidential term while losing its majority in the legislature. China called the result a rejection of peace; the United States congratulated Lai carefully, wary of the most dangerous flashpoint on Earth, where a Chinese move against a democracy of 23 million and the world's most advanced chip industry could pull in America and upend the global economy. The voters knew all this and chose continuity and self-rule anyway.

IN BRIEF

Japan's terrible new year; Epstein's list; Harvard's president resigns; Ecuador

Japan began 2024 with catastrophe: a magnitude 7.6 earthquake struck the Noto Peninsula on New Year's Day, killing more than 200 people, and the next day a Japan Airlines jet collided with a coast guard plane on the runway at Tokyo's Haneda airport and burst into flames. Court documents naming associates of the late financier Jeffrey Epstein were unsealed through early January, a long-anticipated list that produced more innuendo than revelation. Claudine Gay resigned as president of Harvard on January 2 after a plagiarism controversy and a disastrous congressional hearing on antisemitism, the shortest tenure in the university's history. And in Ecuador, gunmen stormed a live television broadcast on January 9 as the country descended into open warfare between the state and drug gangs.

The Column

The world still runs through a few narrow places

Everyone learned the word "supply chain" in the pandemic and then forgot it. A militia with drones in Yemen is a reminder that the global economy is more fragile, and more concentrated, than its smooth surface admits.

By Daniel Reeve

We built a global economy on an assumption of calm, and this fortnight a group of fighters in one of the poorest countries on Earth reminded us how thin that assumption is. The Houthis are not a great power. They have no navy to speak of, no economy, no allies who will fight openly beside them. What they have is a position next to a chokepoint, the Bab-el-Mandeb strait, and a supply of cheap drones and missiles, and that has been enough to force the largest shipping companies in the world to abandon the Suez Canal and sail an extra ten days around a continent. The mightiest militaries on Earth are now bombing Yemen to reopen a shipping lane, and it is not clear it will work. That is the story, and it is worth sitting with, because it is not really about Yemen.

It is about concentration, which is the thing I keep coming back to when I look at how the modern world is built. We optimised the global economy for efficiency, ruthlessly, for forty years. Just-in-time inventory, so nobody holds a buffer. The shortest sea routes, so everything funnels through the same few canals and straits. The cheapest suppliers, so whole categories of goods come from one region or one factory. Every one of those choices made things cheaper on a normal day, and every one of them removed the slack that lets a system absorb a shock. We took the padding out of everything, on purpose, and called it progress, and it was progress, right up until the day something hit one of the load-bearing points and there was nothing to absorb it.

This is the same lesson this paper found in a bank run last spring and a dam collapse in the autumn, wearing different clothes. A system optimised until it has no slack is a system that works beautifully until it doesn't, and then fails all at once, because the very efficiency that made it cheap is the absence of the buffer that would have saved it. The Red Sea is that lesson at the scale of the whole planet's trade. One strait. Twelve percent of everything. A handful of people with drones. And the smooth surface of globalisation, which we had come to treat as a law of nature, turns out to have a few narrow places where a determined hand can reach in and stop it.

I do not have a tidy solution, because there isn't one; you cannot un-optimise the world economy by Tuesday, and the efficiency is real and has lifted billions out of poverty. But I would say this to anyone who runs anything, at any scale, because it scales all the way down to a single company's supply of a single part. Know where your chokepoints are. Know which single supplier, single route, single system you cannot function without, the one that has been fine for so long you have stopped seeing it. And ask what your buffer is, because if the answer is that you removed the buffer years ago to save money, then you are the global shipping industry in December, one determined actor away from sailing the long way round, and the time to find that out is not the fortnight the missiles start.

The Ledger

A quieter fortnight for AI amid the geopolitics, though CES filled Las Vegas with AI in every device. The year's real AI story, whether the first laws bite and whether the models keep improving, is still loading.

Data centers & power

The Red Sea crisis is a reminder that the digital economy still floats on the physical one: the chips in every data centre crossed an ocean through a strait a militia can close. Concentration risk is not only a grid problem.

Rates

Markets opened the year still betting on Fed cuts, though a touch less certain than in December. The soft-landing trade is intact but no longer unquestioned; the data will decide.

Real estate

US 30-year mortgage 6.66 percent (January 11), holding well below the autumn peak. The frozen market waits, like everyone else, on the rate cuts the Fed has hinted but not made.

India tech

A quiet fortnight for India in the wider news, with the general election now months away and the technology sector watching the same AI and rate questions as everyone else.

What we called wrong

Nothing yet in the young year. But the Red Sea vindicates a thread we have run since No. 6: that concentration, the single point everyone depends on and no one questions, is the defining fragility of the age, whether it is one bank, one dam, or one strait.

The Back Page

Ninety seconds

On the evening of January 2, a Japan Airlines Airbus A350 landing at Tokyo's Haneda airport struck a coast guard plane on the runway and immediately caught fire. Inside were 379 people. All of them got out. Every single passenger and crew member evacuated the burning aircraft in about 90 seconds, down emergency slides, as the cabin filled with smoke and the plane behind them became an inferno, and the last crew member checked the cabin and stepped off moments before it was engulfed. Five of the six people on the coast guard plane died, and that is the real tragedy of the night and should not be forgotten. But the 379 are a different kind of story, and it belongs on this page because it is the mirror image of almost everything else this paper writes about. The evacuation worked because of the boring things: the fire-resistant cabin materials mandated after earlier disasters, the crew drilled relentlessly on the 90-second rule, the passengers who, remarkably, left their carry-on bags behind because the crew told them to and they listened. Every safety rule that made it possible was written in the blood of a previous crash, unglamorous, expensive, resented at the time. This paper spends most of its life documenting the warnings that went unheeded and the systems that failed. Here is one that worked, exactly as designed, on the worst night, and gave 379 people the rest of their lives. The drills are boring right up until the ninety seconds you need them.