Global Threat Outlook 2026: Middle East and the Red Sea

For global shipping, energy, and logistics firms, the Middle East and Red Sea region now operates under conditions of permanent insecurity. Routine commercial transit is regularly disrupted by active conflict and proxy warfare. In 2025, for example, Yemen’s Houthi rebels launched an intensified maritime campaign: they sank two cargo ships in July, killing four seafarers. By late 2025 the United States Maritime Administration counted “more than 100 separate Houthi attacks on commercial vessels affecting over 60 nations” since November 2023. This persistent campaign makes risk highly visible and continuous rather than episodic. It forces insurers, governments, and shippers to treat security measures and threat assessments as core operating parameters. The region combines old-line enforcement (sanctions on Iran, Syria, etc.) with new layers of non-state coercion (missile, drone, and mine attacks by militant proxies) and formal war. In short, moving goods through the Red Sea corridor now means managing both insurance-driven behavior and active hostility.

Operating Context: Conflict and Sanctions as Norms

The Middle East is a conflict-intensive theater, but in 2025 the threat to maritime trade comes less from classic naval battles than from networks of irregular forces and shifting political alliances. Iran’s support for proxies like the Houthis in Yemen and Hezbollah in Lebanon remains effectively constant, as do wide-ranging sanctions on Iran, Syria, and other actors. Sanctions in the region are effectively a permanent operating condition. Firms must assume that any touchpoint with sanctioned parties or regions (oil exports, dual-use goods, financiers) invites scrutiny and friction. Even absent legal violations, banks and insurers often pull back rather than risk enforcement. In practice, companies face conservative interpretations of rules; not because the laws demand extreme caution, but because “the cost of being wrong is asymmetric”. In this context, political and military changes occur (elections, coups, ceasefires) without easing the baseline pressure. For example, a U.S.-brokered Gaza ceasefire in late 2025 temporarily halted Houthi ship attacks, but fighters explicitly warned that resumption was a matter of policy, not logistics. This shows how localized developments (e.g. diplomacy, regional wars) set “trigger points” for maritime coercion.

Economic dependencies compound the tension. Many Middle Eastern economies rely on oil exports and imports. Iranian oil still flows through murky channels despite sanctions: the U.S. Treasury in December 2025 targeted a “shadow fleet” of 29 tankers carrying sanctioned Iranian oil, noting they operate without top-tier insurance and opaque ownership. In practice, firms often rely on intermediaries, local agents, or “blending” operations to maintain trade. Such workarounds mean that formal compliance (filing paperwork, vetting counterparties) can coexist with substantial hidden exposure. As one risk briefing noted for a similar context, “activity shifts laterally rather than disappearing” when scrutiny tightens. In short, sanctions regimes have not “solved” the underlying incentives; they have embedded a condition of chronic risk that operators navigate daily.

Maritime Corridors and Risk Convergence

The Red Sea and adjacent waters form one of the planet’s busiest maritime corridors, linking Europe and Asia via the Suez Canal and Gulf of Aden. Critical chokepoints, the Bab el Mandeb, Gulf of Aden, and Suez Canal, lie directly on the frontline of conflict. Because global trade has few viable alternatives to this route, risk is imposed directly on movement, routing, and continuity. Most of the world’s oil tankers and container ships could not easily “opt out” of the Red Sea in 2025: rerouting around Africa adds weeks and millions in cost. As a result, even indirect threats off Yemen’s coast become global trade risks.

Traffic statistics illustrate the strain. By mid-2025 the volume of large commercial transits through the Suez Canal and Bab el Mandeb was roughly 60% below pre-crisis levels. In June 2025 alone, monthly transits through Suez fell 7% and through Bab el Mandeb 3% compared to May. Analysts reported the lowest weekly passage counts when regional tensions peaked. Major shipping lines gradually “normalized” shorter routes as safer: many diverted around the Cape of Good Hope or paused Red Sea journeys altogether. Even after some détente, operators remained cautious. According to industry reporting, “everybody has an excuse to continue … avoiding the Red Sea because nobody wants to be the first” to return. A handful of ultra-large container vessels did cross by late 2025 (signaling limited confidence), but by year-end Suez revenues were sharply reduced. Egypt’s toll income in 2023 was ~$10 billion, and the IMF estimated Houthi disruptions cut it by about $6 billion in 2024.

Despite this deterrence, some flow has resumed under new protocols. Shipowners implementing “best management practices”, armed guards, radio silences, evasive navigation, have cautiously led a partial return. In late 2025, the EU’s Operation Aspides even downgraded risk from “high” to “moderate” for non-Western ships, reflecting armed convoys and targeted escort arrangements. But these adjustments have reshaped trade patterns. Several oil majors switched to brokered deals: cargoes travel on others’ ships through the Red Sea and are picked up later, insulating the majors from direct exposure. Such shifts demonstrate that continuity is preserved only by creative detours; an insurance-driven behavior as much as a strategic one.

Non-State Coercion and Security Threats

The threats facing ships in the Red Sea are varied and adaptive. Houthi rebels in Yemen employ a spectrum of asymmetric tools: missiles, drones, remote-controlled explosive boats, and even limpet mines against merchant vessels. These non-state actors explicitly target ships linked to Israel, the U.S., or their allies. The U.S. Maritime Advisory warns that “vessels with an Israeli, U.S., or UK association” are especially at risk. In practice, this has translated into attacks on Greek and Liberian-flagged ships whose owners visited Israeli ports, and attempts to divert vessels toward Houthi-controlled harbors as a show of force. Indeed, authorities claiming to represent Yemen have radioed civilian ships to change course; a form of indirect coercion that, while not yet resulting in hijackings, signals a willingness to interdict free passage.

These tactics are explicitly calculated to impose costs. As one Security Council representative noted in mid-2025, Houthi attacks have “disrupted the free flow of global commerce” and more than doubled the cost of vessel operations in the corridor. Ship insurance underwriters confirm this: average war-risk premiums for a Red Sea transit climbed from about 0.3% of vessel value to 0.7% after renewed strikes in mid-2025. Beyond pricing, insurers began to pick “clean” ships by flag and history: carriers known to avoid Israel have found cover more readily than those with any remote Israeli link. In effect, these non-state threats force private insurers to become de facto gatekeepers. Firms note that sometimes insurance terms change in advance of any official guidance; major coverage withdrawals occurred days after the July attacks, long before new laws were enacted.

Other irregular maritime risks have surfaced. As coalition warships focused on the Red Sea, Somali piracy, once thought largely quelled, has re-emerged along parts of the East African coast. According to analysts, “naval assets deployed to counter Houthi threats have created enforcement gaps” that pirates could exploit. Each vessel transiting these waters now faces compound exposure: even if it survives Houthi drones, it must contend with the possibility of pirate hijacking under the same insurance war-risk coverage. In short, security hazards have normalized. What was extraordinary a year ago, a missile striking a commercial tanker or a bow-mounted drone probing a bulk carrier, is now a standard scenario factored into every voyage plan.

Insurance and Financial Signals

Insurance markets in 2025 have become an early-warning indicator of Middle East risk. Market sources observed that after Houthi strikes in July, war-risk premiums soared before regulators issued new sanctions or warnings. One expert noted it is now routine for insurers to “price not only physical risk, but regulatory and reputational uncertainty”. In the Red Sea, insurers triggered cancellation clauses en masse at the crisis outset, forcing shippers to scramble for alternate underwriters. Over time, however, the market adapted. Underwriters identified targeting patterns (e.g. “stay off Israeli-related vessels”) and began differentiating risk pools. Certain “low-risk” carriers regained coverage at elevated but manageable rates, while others remained excluded or uninsurable.

These financial signals have tangible operational impact. When war-risk cover is unaffordable or unavailable, ships reroute. Analysts note that the container ship CMA CGM Benjamin Franklin successfully crossed the Red Sea in late 2025, a key confidence signal, precisely because her booking met insurers’ stricter criteria (no hazardous cargo, no links to Israel/US). In contrast, tanker companies delay shipments or employ shadow brokers. Each insurance constraint translates into delays and shifted liabilities: contracts are re-drafted, demurrage clauses activated, and risk shifted down the supply chain. And once an incident occurs, insurers retrospectively scrutinize the entire network around a loss. Firms that treated the region as routine often find that their documentation and decision rationale “do not withstand retrospective review” by claims adjusters.

Financial institutions follow a parallel logic. Correspondent banking with Middle Eastern clients remains fragile. Major Western banks continue to avoid even middling risk corridors as a precaution, keeping accounts under enhanced monitoring if not closed outright. While these banking actions are less visible than missile strikes, they have a cumulative effect: transactions arrive late, letters of credit are delayed, and currency flows are disrupted. Often this de-risking proceeds transaction by transaction, slipping under board radar until a significant timeout occurs. In practice, many shipping firms have found themselves limited by credit lines or unable to hedge currencies in oil trades, long before any official export-control change.

Infrastructure Strain and Routing Adjustments

The sustained insecurity has strained critical infrastructure. The Suez Canal, historically Egypt’s strategic choke point, saw a steep drop in transits and revenue. Shipping from the Red Sea has remained below “normal” for months. The lost traffic has real-world impact: before 2023, about $1 trillion in cargo passed through these waters annually, but analysts report that disrupted routes and lower volumes “reduced foreign exchange inflows from the Suez Canal by $6 billion in 2024”. Some freight has simply shifted to alternate routes. Container traffic, which carries high-value goods, was among the first to detour. Rather than waiting for risk to abate, many global shippers re-routed around Africa or rebooked via Panama and North Atlantic circuits.

Critical ports and pipelines also feel the tension. Yemen’s oil terminals and pipelines, for example, have seen sporadic closures due to drone threats and militia control. Persian Gulf exports occasionally are delayed by precautionary alerts (radio and AIS shutdowns become routine at night). In the Red Sea itself, there has been limited physical damage to large chokepoints; the Suez Canal Authority reports remained operational. Yet daily capacity is not a sufficient metric: the true strain is on continuity. Every diverted voyage represents lost efficiency and cumulative cost. The Secretary-General of the UN has noted that Houthi attacks on shipping have “disrupted the free flow of global commerce”, recognizing how merchant fleets, and thus supply chains worldwide, must continuously adjust timing and cargo origins to keep goods moving.

The energy sector mirrors these trends. Oil and gas flows from the Gulf region are subject to rerouting. In 2025, even non-sanctioned oil cargoes began to be sold to local traders who would ship the physical barrels on “clean” ships only after Suez. Firms in the energy sector largely decoupled paper sales from physical delivery. For example, an oil company might contract cargo through a broker so that its own tankers never entered the danger zone. This indirect approach has insulating benefits but reduces certainty. Analysts project that only with months of zero incidents would major oil companies resume direct Red Sea transits. Until then, expensive contingency planning (additional tanker hires, alternative warehousing) effectively creates an ongoing “insurance tax” on energy logistics.

Indirect Exposure and Networked Risk

Exposure in the Middle East/Red Sea region is highly networked rather than incidental. No single transaction seals a company’s fate; rather, risk accumulates through interconnected structures. A vessel that calls in a Houthi-held port, picks up Iranian oil, or docks in a sanctioned country builds a profile of concern across multiple systems. Even if each step was individually compliant, the pattern may trigger scrutiny. In market terms, this means that firms often find themselves “indirectly connected” to sanctioned or politically sensitive entities through supply chain nodes. For instance, a Mediterranean refinery might source a critical feedstock from Asia, unaware that the goods were bartered for Iranian oil via a Malaysian trader. Years of layered intermediaries and shell companies mean that a seemingly unrelated shipping route can transmit risk from one jurisdiction to another.

Vessels themselves can change identities mid-journey. Ship-to-ship transfers in international waters have become a staple of sanctioned trade. Tankers may swap flags or names to obscure their cargo origin. These practices are mirrored on the enforcement side: a crackdown in one country often pushes volume into another. The U.S. Treasury’s targeting of Iran’s shadow tankers has evidently only expanded the old scrubber of business to brokers and ports that remain open to them. In 2025, it was common to see the same vessel name reappear under a new flag or owners when pressed. Regulators’ responses have so far been reactive and narrow, punishing examples rather than system-wide patterns.

This network effect means that risk migrates across time and space. A ship banned by one insurer may re-enter service via a smaller market’s cover, but then carries the same hidden risk for its new charterer. Trade flows diverted around hotspots create second-order exposures: a backlog of cargo at the Cape of Good Hope or Panama creates concentration risk in other ports and routes. Cyber and data flows have been harnessed too: ownership databases, cargo manifests, and even AIS signals are cross-referenced by enforcement agencies. In practice, the Middle East’s indirect exposure model closely resembles what specialists elsewhere call “shadow networks”. The aggregate effect is that companies often overlook risk not because it is discreet, but because it is dispersed. In hindsight, an enforcement review will stitch together these disparate nodes (flag changes, document trails, port calls) into a coherent picture. Management teams, however, struggle to connect all those dots in advance.

Enforcement and Compliance Realities

Formal enforcement in the region is uneven and highly politicized. U.S. and European authorities continue to apply extraterritorial sanctions tools, but local governments often have limited capacity or different priorities. The UN Security Council, for instance, repeatedly demanded that Yemen’s Houthi forces stop attacking ships, only to see attacks continue. In mid-2025 the Council merely extended its requirement for monthly reporting on such attacks, reflecting a lack of new leverage. Regional navies (U.S., U.K., French, Arab partners) conduct convoy escorts and military strikes when attacks occur, but rules of engagement and assets on station vary with their own political calendars. No single international force holds the Red Sea “closure” in check; there are more blind spots than convoy screens.

For firms, the upshot is that compliance with law is a necessary baseline, but not a safeguard. A company might win a court case confirming its transactions did not violate sanctions or export controls, yet still face seizure or loss on the high seas. Moreover, enforcement actions tend to fall on whoever is easiest to reach. Latin American counterparts recently observed that in sanctions cases, “local entities become co-defendants, witnesses, or pressure points rather than primary targets”. In the Middle East context, an Asian trading house might unexpectedly find itself dragged into a U.S. case simply because one of its supertankers was listed on an advisory that day.

This contributes to a widening gap between paper compliance and operational defensibility. Formal compliance teams can attest that every contract was checked and every sanction list cleared, but such assurances may falter under a helicopter gunship or an unpredictable blockade announcement. The global trend toward fragmented enforcement, with some countries doling out fines and others issuing bounties, means that even fully compliant businesses must ask: defensible to whom? In past incidents, media and regulators have often treated maritime seizures as indicative of guilt, regardless of intent or actual violations. Firms unprepared for that reputational pressure can see their risk posture judged by perception rather than by legal merit.

Implications for Leadership and Outlook 2026

For boards and general counsel, the Middle East and Red Sea dynamic underscores a new risk logic: leadership exposure is shaped by how risk evolves before it hardens into consequence, not by any single known regulation or fact. The key challenge is not whether to operate in this theater, global trade largely forces that choice, but how to govern it. Traditional compliance protocols (sanctions lists, documented due diligence) must be augmented by ongoing monitoring of operational signals: insurance notices, port intelligence, and real-time security assessments. In effect, underwriters and risk advisers have become extension of compliance teams.

Senior decision-makers should recognize that small operational choices accumulate. A change in routing, a brief port call, an insurance endorsement signed off quietly, each can seem insignificant until viewed en masse. When an incident draws scrutiny, investigators will aggregate these choices to judge the firm’s overall posture. Historical casework shows firms often stumble not on a single glaring violation, but on a perceived pattern of evasions and coincidences. Mitigating this requires a clear articulation of risk appetite and tolerance, beyond the checkboxes of formal rules.

In the year ahead, expect the Red Sea corridor to remain a security pressure point. Ceasefires and negotiations will alter the pattern of attacks, but underlying drivers (regional war, militant funding, tanker profits) persist. Insurance and financial markets will continue to reflect risk shifts faster than any law can change. Crucially, this region will remind global firms that static frameworks fall short: risk in the Middle East migrates dynamically across jurisdictions, moving from physical strikes to financial controls to reputational fallout. The lesson is not that the threat will end suddenly or sweepingly resolved, but that exposure must be managed continuously. Boardrooms must therefore stay attentive to how evolving threats imprint on their operations, a challenge far broader than any single compliance directive can capture.