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It\u2019s now day 30 of the Red Sea crisis\u2014and month four of worries of\u00a0a wider Middle East conflict, the possibility of which has concerned economists and politicians alike since the Oct. 7 outbreak of the Israel-Hamas war. Over the past month, Houthi militants based in Yemen<\/a> have repeatedly attacked cargo ships in the area, forcing shipping giants to reroute their vessels<\/a> around South Africa\u2019s Cape of Good Hope. That\u2019s a big deal, because roughly<\/a> 15% of the world\u2019s shipping traffic, and 30% of its container traffic, transits the Red Sea each year, including oil tankers and container ships transporting every type of product you can imagine.\u00a0<\/p>\n The conflict has intensified in recent days. On Thursday, a U.S.-led coalition ordered airstrikes<\/a> on Houthi targets in Yemen, a week after Iran, which has backed Houthi militants for years, deployed the warship Alborz to the region. Even oil tankers, which for a time had continued their transit through the Red Sea even as cargo vessels headed for safer passages, abandoned the trade route this week. On Friday, four major oil tankers changed their course<\/a> to avoid the Red Sea after the most recent strikes by the U.S. and its allies.\u00a0<\/p>\n Ominously, for the global economy, which was rattled by Russia\u2019s 2022 invasion of Ukraine<\/a>, geopolitics could be returning to center stage before the Federal Reserve\u2019s inflation battle<\/a> has been completely won.<\/p>\n Economic consequences of the Israel-Hamas war are already being felt, bringing back memories of the supply chain chaos and surging oil prices that exacerbated inflation after the Ukraine war. Oil prices are rising; shipping costs have more than doubled since October; and there are increasingly lengthy transit delays for goods. Some experts are concerned that this bottleneck will fuel another surge of global inflation, forcing the Fed to hold off on its widely expected interest rate cuts.\u00a0<\/p>\n But when it comes to forecasting the economic impact of the Red Sea crisis, particularly for the U.S., Bob Elliott, co-founder and chief investment officer of the investment firm Unlimited, advocates humility.\u00a0<\/p>\n He noted that while it\u2019s helpful to understand and prepare for the potential consequences of the Red Sea crisis\u2014which include rising inflation and slowing global growth\u2014no one really knows how long it will last or how bad it will get. When it comes to the conflict\u2019s impacts on the U.S.: \u201cThe most honest answer you should be getting is \u2018I have no idea,\u2019\u201d Elliott told Fortune. <\/em>That may not be the most satisfying answer, but it\u2019s the \u201cright answer,\u201d according to the former Bridegewater exec.<\/p>\n Experts agree that in theory, the Red Sea crisis could certainly cause shipping costs and oil prices to soar, leading to a resurgence in global inflation<\/a> that would force the Federal Reserve to keep interest rates higher for longer, weighing on the U.S. economy. But tensions in the key trade route could also cool, leading oil prices and inflation to drop and paving the way for a soft landing<\/a>\u2014where inflation fades without a recession.<\/p>\n Betting on rising tensions or an expanded war in the Middle East wouldn\u2019t be much of a stretch given the region\u2019s history. But the \u201cdefault assumption\u201d shouldn\u2019t be that the Red Sea crisis will spread and impact the global economy just yet, Elliott argued.\u00a0<\/p>\n Forecasting the economic impact of the Red Sea crisis isn\u2019t easy. But the regional conflict\u00a0 is already leading to some identifiable problems for businesses and consumers.\u00a0<\/p>\n First, freight rates are rising\u2014fast\u2014and that will have an immediate impact on some American companies. Drewery\u2019s World Container Index<\/a>, which tracks container freight rates on 11 major trade routes, has soared 121% from $1,390 per 40 foot container just before the outbreak of\u00a0 the Israel-Hamas war to $3,090 this week.\u00a0<\/p>\n Second, supply chains are being rerouted, which is leading to longer transit times for goods worldwide. Retailers have begun to warn their customers of potential issues. The Swedish furniture giant Ikea told the BBC<\/em><\/a> in late December that consumers should expect \u201cdelays\u201d<\/a> and \u201csome availability constraints\u201d at their stores due to the Red Sea crisis. And Tesla<\/a> was forced<\/a> to halt production at its Berlin plant because \u201cconsiderably longer transportation times\u201d are \u201ccreating a gap in supply chains,\u201d Reuters<\/em><\/a> reported Friday.<\/p>\nA shipping and supply chain crisis<\/h2>\n