Red Sea Tensions: Somaliland’s Economic and Security Vulnerabilities

On 20 July, Yemen’s Houthi movement announced naval blockade against the Kingdom of Saudi Arabia. Saying it would target the Kingdom’s ports and vessels, as well as any shipments that violated the restrictions imposed on Saudi Arabia. The move comes a week later, after Saudi Arabia carried out airstrikes on Sanaa airport, which the Houthis seized in 2014.

In a statement, the Houthis said their action was a response to what they described as a Saudi blockade of Yemen that has lasted for 12 years. The announcement also comes amid fighting between the Yemeni government and Houthi forces in the coastal city of Hodeidah. The clashes between the two sides in July were the most serious since a United Nations-brokered ceasefire was signed by the parties four years ago.

The Houthi decision also comes as the United States and Iran have resumed exchanging strikes. This followed the breakdown of the brief ceasefire that took effect in April. Notably, the security adviser to Iran’s Supreme Leader and the speaker of the Iranian parliament have both warned that, if the conflict continues, the Bab el-Mandeb Strait could be closed, adding pressure on global energy markets that are already reeling from disruptions caused by the closure of the Strait of Hormuz.

Houthi movement has said they targeted eight ships so far, including the Saudi Oil tanker “Wafaa” on 5 August, while carrying out drone and missile attacks in the Kingdom’s eastern oil fields, Red Sea port of Yanbu, and the capital of Riyadh. In response, Saudi Arabia, in joint strikes with the United States, has targeted the positions of Iraqi militias that it has accussed to be involve the recent attacks on the Kingdom. As of 22 July, at least seven oil tankers have made U-turns, all of which are travelling either to or from Saudi ports.

Meanwhile, at a meeting attended by defence ministers and representatives from 43 states on 31 July, Saudi Arabia announced the formation of a 14-country coalition to defend the Bab el-Mandeb Strait and safeguard the flow of trade and oil through this waterway. Among the 14 countries are Somalia and Djibouti, which lie on the African side of the Red Sea.

Traffic through Bab el-Mandeb, which carries more than 14 per cent of global trade, has increased since Iran announced in February that it had closed the Strait of Hormuz, through which 25 per cent of the world’s oil and fuel supplies pass. In June, 7.4 million barrels of oil passed through Bab el-Mandeb—equivalent to 7 per cent of global oil flows—compared with 4.2 million barrels a year earlier.

Saudi Arabia’s East–West oil pipeline, completed in the 1980s, carries oil from the Abqaiq fields in the east of the Kingdom to the port of Yanbu on the western coast of the Red Sea for export. The pipeline carries seven million barrels of oil a day and has become an alternative lifeline for Saudi oil in global markets since the recent closure of the Hormuz Strait.

Tanker-tracking and maritime data companies Kpler and Signal Ocean reported that Yanbu exported four million barrels of oil per day in June, compared with 973,000 barrels a day a year ago, according to Reuters.

This article briefly examines the tensions in the Red Sea and their potential economic and security implications for Somaliland. It also outlines measures the government could take to guard against the negative consequences of these tensions and limit the damage they may cause.

In their report for the first quarter of this year, Somaliland’s Ministry of Finance and Economic Development and the Bank of Somaliland noted that the economic repercussions of the war involving the United States, Israel and Iran had adversely affected the country’s economy. Trade accounted for 49.2 per cent of Somaliland’s GDP in 2025. Since the conflict began, the cost of shipping a 40-foot container from Turkey to the port of Berbera has risen from $3,200 last year to $6,200 today.

Inflation has also increased, rising from 8.2 per cent before the war to 9.9 per cent in March this year. The report by the Ministry of Finance and the Bank of Somaliland attributed the increase to higher living costs and rising food prices. Somaliland imports 51 per cent of its food and other necessities. Inflation in these categories rose from 13.9 per cent in the first quarter of 2025 to 29.2 per cent in the first three months of this year.

Most of the Somaliland government’s revenue comes from two streams: customs duties and inland taxes. Customs revenue, in particular, is heavily dependent on import and sales taxes, which account for more than 70 per cent of the revenue collected at customs posts. Taxes on international trade and transactions, and taxes on goods and services, account for 40.41 per cent and 24.85 per cent, respectively, making them the government’s largest sources of revenue.

Somaliland relies heavily on tax revenue collected through customs, particularly at the port of Berbera. Yet the number of vessels calling at the port has declined by 21 per cent. During the first quarter of this year, 251 vessels arrived at Berbera, compared with 319 during the first three months of 2025. The decline in shipments reaching the port is linked to the war in the Middle East and the maritime disruptions it has caused, particularly at the Strait of Hormuz.

The government’s dependence on customs revenue, together with a trade imbalance of $225,100,243 between exports and imports, demonstrates Somaliland’s vulnerability to external shocks and the scale of their potential impact. The closure of the Strait of Hormuz, or any disruption at Bab el-Mandeb, would directly affect the availability of goods in commercial markets, shipping times, and insurance for vessels and cargo, impacting the government's available sources of revenue in return.

The conflict in the Middle East and the renewed tensions in the Red Sea are adversely affecting both security and the everyday lives of citizens. The struggle for influence in the Middle East and the competition among regional powers are also spilling into the Horn of Africa, a region already beset by several conflicts.

The convergence of crises in the Red Sea and the ongoing conflicts in the Horn of Africa could thrust the Horn into further instability by regionalising pre-existing tensions or entangling regional and extra-regional competitions in the wider Red Sea arena.

The rising costs of necessities, fuel and food are being felt in every Somaliland household. At the same time, declining government revenue threatens the state’s ability to pay public-sector salaries, maintain eight security agencies, and respond to drought, water shortages, the resulting displacement, climate change and recurrent droughts. These pressures are placing an additional burden on an economy already weakened by the fires that devastated the Waheen and Wajaale markets and by the lingering effects of the COVID-19 pandemic.

Over the medium and long term, the Somaliland government must develop a national plan to increase domestic production and reduce the severe impact of external shocks on the economy and people’s livelihoods. In the immediate term, however, it is equally important to prepare for these shocks, mitigate their effects, and develop ways to manage their consequences.

Reducing expenditure across the central government and its agencies is essential to meeting this challenge. Ministries and government bodies should suspend their annual ceremonies and eliminate avoidable spending on events. The administration and operations of the National Disaster Preparedness and Food Reserve Authority should also be strengthened, with particular attention given to establishing national stockpiles of food, medicine and fuel if maritime access is disrupted.

In conclusion, the Somaliland government should examine ways to expand a national fuel reserve that could be used during emergencies and disruptions affecting the movement of goods and trade, particularly given that 90 per cent of global trade is transported by sea.