Dissension between Israeli military and Netanyahu escalates; Red Sea perils rise to new level

The sinking of a coal carrier by a sea drone has boosted the risk of navigating the vital Bab el-Mandeb chokepoint in the Red Sea to a new level and is driving a fresh surge in insurance costs.

Huge swings in the cost of Israeli airfares have left economists struggling to get a handle on inflation in wartime.

Israel military appears to push back on goal to end Hamas

Israel’s military appeared to suggest Prime Minister Benjamin Netanyahu’s long-stated goal of destroying Hamas was unachievable, emphasising the difficulties in claiming victory in a war that’s now into a ninth month.

“To say we are going to destroy Hamas, to make it disappear — it’s simply throwing sand in the eyes of the public,” Rear Admiral Daniel Hagari said in an interview with Israeli TV. “Hamas is an idea. Whoever thinks we can make it disappear is mistaken.”

After his comments attracted controversy — including a dressing down from Netanyahu — the Israel Defense Forces clarified that he was referring to “the elimination of Hamas as an idea and ideology”. There’s been speculation the group has set aside battalions to regain control of Gaza even in the event of existential losses, according to Israeli state broadcaster Kan.

Whatever his intended meaning, Hagari’s interview drew attention to the argument that Iran-backed Hamas, whose militants attacked Israel on 7 October to spark the ongoing conflict, may never be eliminated. The group, designated a terrorist organisation by the US and European Union, has thousands of fighters and a network of tunnels under Gaza’s main towns and hasn’t indicated it’s close to a surrender.

That makes it tougher for Netanyahu to ever declare victory in the war — based on the objectives he has laid out for a permanent ceasefire to be reached. Those include the destruction of Hamas and the return of hostages abducted from Israel on 7 October, when about 1,200 people were killed.

More than 37,000 Palestinians have been killed in Israel’s retaliatory campaign, according to the health authorities in Hamas-run Gaza, which doesn’t distinguish between civilian and militant casualties.

Netanyahu reiterated his position during a meeting on Thursday with families of hostages who have died in captivity.

“We will not leave the Gaza Strip until all the hostages return, and we will not leave until we eliminate the military and governmental capabilities of Hamas,” the prime minister said. “We don’t have the option of giving up, we don’t have the option to giving up on victory.”

“This is my position. Whoever opposes it — let him oppose it openly,” he added.

Hagari gave his interview during a week when relations between Netanyahu and US President Joe Biden appear increasingly frayed, with a disagreement emerging over Netanyahu’s assertion that the US was withholding arms deliveries. The Biden administration has emphatically denied that. Washington has been working alongside Egypt and Qatar to mediate a ceasefire between Israel and Hamas for some months without success.

Asked about the apparent discord between Netanyahu and the military, US National Security Council spokesperson John Kirby told reporters on Thursday, “It would be imprudent at best for us to speak about any intergovernmental tension in Israel right now.

“We don’t see any impact of these tensions on our shared objective of getting all the hostages out in place, getting a ceasefire in place and trying to find a way to end this war.”

As tensions persist over policy in Gaza, Israel also faces the threat of a war in Lebanon against Hezbollah, another Iran-backed force.

Read more: Why Hezbollah is more worrying to Israel than Hamas: QuickTake

Drone-sinking of coal ship takes Red Sea perils to new level

The sinking of a coal carrier by a sea drone has boosted the risk of navigating the vital Bab el-Mandeb chokepoint in the Red Sea to a new level and is driving a fresh surge in insurance costs.

The British navy said on Tuesday that the only visible objects in the last known location of the Tutor dry-bulk carrier — at which point it was semi-submerged — were some debris and an oil slick. Yemen’s Houthi militants managed to strike it with a seaborne drone, killing one crew member and injuring others. They said they eventually sank it with explosives.

The price of covering vessels for transit — measured as a percentage of the ship’s value — surged to about 0.6% from between 0.3% and 0.4% according to two people involved in the market. It means that a vessel worth $50-million would have to pay $300,000 for one passage. The rate is nevertheless slightly below a peak reached earlier this year when attacks ramped up.

The sinking is a stark reminder of the growing threat the militants pose to vessels in the region. US and UK bombing of the Houthis, which began in January, failed to quell the attacks and instead led to vessels associated with the two nations becoming targets for the group, alongside freighters with connections to Israel. The Houthis, supporting Gazans, have warned of an expanded operation to potentially attack as far as the Mediterranean.

“It’s another indicator that the Houthis are stepping up their attacks on those vessels that were warned not to pass through the Red Sea,” said Dirk Siebels, a senior analyst at Risk Intelligence, of the sea-drone strike.

Not all ships are paying the bumper insurance premiums. Chinese vessels continue to receive significant discounts, probably because they have so far been less likely to be deliberately targeted, the people said.

The Tutor incident marked the first time that a ship was successfully hit by what the military call an uncrewed surface vessel, or USV — effectively a small boat packed with explosives. It appeared the Tutor was run by a company that had deployed another carrier in Israel, thereby making the Tutor a target, security analysts said.

Israeli airfare chaos jolts inflation, wrongfoots economists

Huge swings in the cost of Israeli airfares have left economists struggling to get a handle on inflation in wartime.

A new methodology used by Israel’s statistics bureau to measure the prices of plane tickets has caused so much confusion that almost all forecasters failed to predict the direction of inflation in the past two months. A single analyst in a Bloomberg survey of 18 correctly said annual price growth wouldn’t accelerate in May, when the cost of air travel plunged following a surge a month earlier.

Though airfares account for just 1.6% of the consumer price index, they are part of a larger transportation and communication category that makes up nearly a fifth of the basket, meaning big changes can heavily tilt monthly readings up or down.

“The transportation section has had great fluctuations in recent months,” says Nira Shamir, chief economist at Israel Discount Bank. “It is, in fact, becoming unpredictable.”

At stake is the ability of banks and traders to make investment decisions such as whether to favour instruments linked to consumer prices or look for other ways to hedge their exposure. The recent surprise readings also make it harder to map out the path of monetary policy after the central bank shifted to a pause following an interest-rate cut to start the year.

At the root of the confusion is a methodological change made by Israel’s statistics service just a month before the 7 October attacks by Hamas that triggered a retaliatory offensive by Israel.

It previously relied on annual price lists published by air carriers, using the fare in the month of purchase rather than the time of departure. But under a revision made last September, costs are now monitored through an automated process that scans thousands of online transactions, averaging out prices for tickets bought one, four and seven months ahead of a trip.

Forecasters complain that the bureau stopped publication of results using the old method in parallel to the new approach. The agency sees no need for it given that the two calculations measure different sets of data.

Also adding to the uncertainty, the war has thrown Israel’s air travel market into chaos. The number of international carriers operating in Israel dropped by 30% and the number of flights by 40% since the beginning of the conflict.

The result is that price fluctuations from month to month have been volatile, as airlines cease and restart operations to Israel, while demand from travellers swings back and forth depending on the course of the war.

Even the statistics bureau concedes the lack of predictability is here to stay for the foreseeable future.

“It may take up to a year of routine activity until forecasters are better able to lean on data history,” the service said.

Despite the dislocation, most economists largely agree that inflation will hit or slightly surpass the top end of the official 1%-3% target range in a year, and predict airfares might be a major cause of a possible overshoot. DM

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