How the Biden Administration Won Tactically but Failed Strategically in the Red Sea

For 15 months, the U.S. Navy fought its fiercest battles since at least the Tanker War. The Navy racked up nearly flawless tactical victories in self-defense, defense of merchants, and defense of allied territory against the Houthis, a Yemeni militant group that sought to deny the Red Sea to global commerce. And yet if we take the goal of Operation Prosperity Guardian as being the resumption of commercial traffic through a key global artery in support of the rules-based international order, it can only be judged as a strategic defeat.

Protecting maritime commerce is the kind of global public good that I would expect a superpower to provision (and, apparently, the Trump administration agrees). So, the question of why Operation Prosperity Guardian failed to guard global prosperity is one worthy of further assessment. The military may one day be called upon to again defend the global economy, perhaps in the Western Pacific. Indeed, as I write this, another U.S. president is launching new, more aggressive strikes against Houthi infrastructure. Lessons from the Red Sea may thus prove valuable context for future policymakers, and perhaps the least understood but most important aspects of the crisis are the agency and incentives of the commercial shipping industry. In other words, what did the Biden administration miss about the “prosperity” part of Operation Prosperity Guardian?

First, the Good

The stellar tactical performance of the U.S. Navy in the Red Sea from the end of 2023 to the beginning of 2025 is not in dispute here. U.S. sailors downed nearly 400 drones and missiles in the theater, and the service demonstrated praiseworthy firsts and innovations. We saw, for example, the first-ever use of a Standard Missile 3 in combat for ballistic missile defense. The Navy executed the first-ever naval air-to-air kill of a hostile drone. The service unveiled a new anti-drone “Murder Hornet” weapons configuration for the F/A-18 Super Hornet.

The Navy likewise made new use of the battle data from ships and aircraft. Information from platforms engaging in Red Sea combat were rapidly transmitted back to the homeland, where experts iterated tactics, techniques, and procedures to ensure optimal performance for the warfighter down range. Last July, the former chief of naval operations visited the destroyer USS Mason as it returned to Naval Station Mayport after a 263 day combat deployment, during which the crew defended 26 merchant vessels from suspected Houthi attacks. Onboard was an enlisted fire controlman, whom the chief of naval operations promoted during her visit. In the course of his duties operating the ship’s five-inch gun, this sailor recognized that his weapon could be effective against a new kind of unmanned threat. His deckplate adaptation was admirable on its own, but more impressive was that the Navy had constructed a functional apparatus to verify, disseminate, and reward that kind of initiative.

Events and Markets

USS Carney intercepted its first Houthi drones and missiles potentially en route to Israel on Oct. 19, 2023, but the first explicit attack on shipping came one month later, on Nov. 19, when Houthi forces seized the ship M/V Galaxy Leader, which was linked to Israel through one of its owners. Following a series of Houthi escalations, Maersk announced a pause for Red Sea-bound vessels on Dec. 15, 2023. On Dec. 18, the Department of Defense announced Operation Prosperity Guardian. Container shipping traffic passing through the Red Sea and Suez Canal soon plummeted and has remained consistently low ever since. Data from the International Monetary Fund’s PortWatch initiative shows Bab al-Mandeb daily transits from Nov. 2023 through Feb. 2025 persistently down by about two thirds.

Militia attacks on U.S. forces in Iraq and Syria, as well as continued Houthi strikes on global shipping, precipitated the first U.S. and U.K. strikes into Yemen on Jan. 11, 2024. More strikes followed, but the show of force did not bolster industry confidence. The price of war risk insurance in the Red Sea up to tripled in response to the hostilities, with quotes as high as 1 percent of the value of a ship. Factor in the Suez Canal’s roughly $500,000  transit fee per vessel and the increased cost of a Red Sea transit began to draw close to the estimated $2 million in added crew and fuel expenses that come with the route around the Cape of Good Hope. As overall insurance rates rose, some insurers even reportedly imposed a premium on U.S., U.K., and Israeli-linked vessels.

With the backdrop of continued U.S. strikes into February, we saw a second wave of shipping diversions, this one constituting tankers and bulkers. By mid-month, well over 100 tankers had shunned the Red Sea, alongside a rise in grain ship diversions. The Maersk CEO told an interviewer at the time that military operations were not sufficient to guarantee the safety of merchant ships, which would continue to avoid the Red Sea. Shortly after, a major seafarers union announced an agreement with operators to empower union crew to refuse to embark on Red Sea transits.

Little changed in merchant flows over the rest of 2024, as strikes and defensive actions failed to move war risk fees down, even as the European Union’s Operation Aspides sought a more substantial role in regional defense. In October, Maersk announced again its reluctance to reenter the Red Sea, this time not until “well into 2025.” Then this past January, one major headline pronounced, “Shippers wary of Red Sea routes despite Houthi pledge to end targeting.”

Supply and Demand

Separate from the obvious risk of harm to crew and property, an important part of shippers’ reluctance to return to the Red Sea only comes with an understanding of their underlying business incentives. One of the most consequential factors to consider when assessing Operation Prosperity Guardian’s impact on industry is not simply the safety of transit but the effects of diversions to carriers’ bottom lines. And the reality, as we will see below, is that many shippers were not hurt by the diversions — in fact, they were helped. Yes, longer routes meant some increased fuel and crew costs, plus potential delivery delays, but many of these expenses could be passed along to customers and consumers. What resulted was actually a financial boon for many shipping lines.

One way to measure the impact of the Red Sea crisis on many lines was the spike in freight rates that came shortly after the Houthis first took aim at commercial traffic. The rise in rates is best understood as a function of declining supply (ships taking longer routes reduced relative supply) held against steady consumer demand (people still wanted fast fashion, ovens, couches, etc.). The price of renting a spot for a container on a major line’s vessels therefore went up, earning operators more money despite the rise in operating costs going around the tip of Africa. Freight rates for both global averages and regional runs (whether they did or did not require a Red Sea passage) went and stayed well above pre-conflict prices.

In fact, the diversions to the Cape of Good Hope (or straight to U.S. West Coast ports) helped alleviate a looming threat for shipping lines — overcapacity. In the throes of the COVID-19 supply chain crunch, lines found efficiencies and ordered more ships. As supply and demand equalized after the pandemic, these changes risked pushing freight rates down dangerously low (from the perspective of operators). Instead, as the CEO of one maritime services company noted, the Red Sea disruptions were “a blessing in disguise, because the amount of ships you need to go around Africa is enormous.” Container shippers entered 2024 as among the best performing European stocks thanks in large part to those freight rate hikes. In August 2024, Maersk released updated financial guidance. Their assessment: supply chain disruptions (i.e., Houthi attacks), paired with continued high consumer demand for shipping services, meant business was going very well.

Free Riding

The description above focused on underlying incentives for private businesses. Yet an equally important part of the equation in understanding why Operation Prosperity Guardian failed to restore merchant confidence is the moral hazard that arose from the United States defending a system with very few other formal partners. This manifested in two underlying commercial dynamics: China capitalized on U.S. protection, and major maritime stakeholders largely avoided bearing any expenses to defend the ocean trading system they so rely on.

Despite U.S. requests for China to help intervene via Iran, the Asian export powerhouse was conspicuously absent from enforcement efforts in one of the world’s key maritime chokepoints. China may have had some larger strategic goals currying political favor in the Middle East. Yet consistent with our focus on market dynamics, it is equally worth noting that Chinese firms also reaped economic wins in the Red Sea while free riding on U.S. protections.

The drop in shipping lines willing to risk Red Sea transits opened an arbitrage advantage that some Chinese firms moved to fill, resulting in a net rise in Chinese regional tonnage led principally by smaller companies (larger lines like COSCO and OOCL often diverted their ships like other Western firms). Chinese shipping in the Red Sea went from around 15 percent of overall traffic at the end of November 2023 to 28 percent by the middle of January 2024. China United Lines even launched a new Red Sea express service, with a ship carrying an oversized Chinese flag for good measure. Houthi assurances and the promise of business gains seemed to have swayed many operators who remained active on the Red Sea route to advertise a Chinese affiliation. An analysis of automatic identification system data showed a dramatic spike in the number of vessels broadcasting Chinese crewmembers as the crisis accelerated into 2024. Some insurers even reportedly offered Chinese-linked vessels better terms than those owned or operated by Western firms, with Chinese customers paying as little as 0.35 percent, or about half as much paid by others.

Other, less adversarial countries also engaged in prosperity free riding, creating a divergence between those countries publicly aligned to the Operation Prosperity Guardian mission and those with regional or global equities in maritime commerce. Simply put, partner participation (United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain — those made public in the December 2023 press release) did not reflect the key stakeholders in Suez traffic nor the vast majority of stakeholders in the business of maritime commerce.

Some (though by no means all) wealthy Western economies were active in Red Sea defense, particularly if we include the E.U. naval mission. Meanwhile, many of the states that were most materially affected by Red Sea disruptions (Sudan, Yemen, Djibouti, Saudi Arabia — for which the shares of GDP passing through the Suez are the highest in the world) were absent from the list of participants. Similarly, a look at the various stakeholders in the business of maritime trade shows notable gaps across a number of dimensions. Countries with major ship ownership (China, Greece, Japan), the dominant flag registry states (Liberia, Marshall Islands, Panama), and nations that provide the bulk of global seafarers (including the Philippines, Russia, Indonesia, and China — India being an exception) were largely absent from the U.S.-led effort to safeguard their property and personnel.

There are valid domestic political reasons why some of these countries would avoid a U.S. mission in the Middle East. There are likewise sound policy reasons why the U.S. should take an outsized leadership role in defense of global trade. And yet, the result of such free riding was an imbalance in which the United States bore costs, Chinese industry reaped gains, and critical maritime stakeholders benefited from whatever residual traffic passed under U.S. protection. The dearth of participating maritime states in Operation Prosperity Guardian meant fewer powerful voices in countries like Denmark, Germany, Switzerland, Japan, or South Korea advocating for major national maritime businesses to capitalize on the defense that Operation Prosperity Guardian offered.

Looking to the Future

What does this analysis imply for a future contingency — perhaps a Chinese quarantine of Taiwan, or a squeeze of the Philippines?

The boring, partial answer is that good military planning should always assess whether military means match the political objectives. In the case of Operation Prosperity Guardian, the Biden administration’s ends turned out to be much more a matter of commercial dynamics than strict security. It remains to be seen whether the latest, brute force approach to dealing with the Houthis will improve merchant confidence in the trade route — initial industry reactions have not changed. Moreover, simply applying more might will not always be a politically or strategically desirable option, particularly against more capable or nuclear armed adversaries.

When military means are insufficient or inappropriate to fully meet the political task, other levers of national power should be part of the equation, including diplomacy and economics. Here we reach another important, if obvious, conclusion — interagency partners (the State, Treasury, and Commerce Departments in this case) have important perspectives that are often unheard or underrepresented in defense planning. These voices get harder to hear the further down echelon the planning happens. Some military staffs may have embedded political advisers from the Department of State. Few have economic advisors from Treasury, fewer still from Commerce. Other agencies face massive staff overmatch when interacting with the Department of Defense, and so it is an imperative for defense planners to ensure their teams work hard to represent the most diverse array of expertise possible to minimize blind spots and strategic miscalculations. Non-defense participation in blockade-style wargames should also be understood as table stakes, not nice-to-haves.

There are, however, some more specific preparations to consider as well. The first is expanding and maintaining a senior dialogue between defense leaders and major Western shipping executives to ensure that commercial motivations are readily understood. This kind of dialogue exists at the tactical level, where U.S. Navy fleets have shipping liaison cells. Yet these are typically staffed by reservists, including strategic sealift officers, whose deep expertise is often contained to the watch floor and infrequently elevated into senior officer ranks in the active component. Such liaising is also focused on concerns over vessel security, not grand strategic intent. In addition to proposing some industry engagements with the chairman of the joint chiefs of staff (this should not strictly be a naval expertise), the Department of Defense should also consider sponsoring embedded fellowships for rising officers in companies like Maersk and Hapag-Lloyd to build expertise on how major lines assess and respond to geopolitical risk. Such assignments should prioritize unrestricted line officers, not logisticians, as the focus should be on expanding knowledge among those most likely to lead major formations and services.

One final consideration is to understand the limits of influencing commercial decision-making in private companies. Large container ships, not to mention the people and cargo they carry, are not risk-worthy assets. It is possible that there may be no measure of military support that will restore full merchant confidence during periods of high tension. In such a case, the focus for the Department of Defense should narrow to how the United States can incentivize the flow of critical resources to allies or partners. This includes pursuing many of the initiatives that have lately come to popularity, like revitalizing a domestic Merchant Marine and maritime industrial base to build and crew essential U.S.-flagged (maybe even nationalized) shipping. But the consideration should also be broader, particularly focusing on novel approaches to nationally insuring commercial vessels willing to take the added risk, as well as providing point defenses similar to those offered to U.S. and U.K. merchants in World War II.

Conclusion

Operation Prosperity Guardian was motivated by admirable instincts consistent with the Biden National Security Strategy’s emphasis on defending sea, air, and space for global benefit. Freedom of movement of goods and services at sea has been an essential part of American prosperity and security since the country’s inception. Standing up for the norms of that system was morally righteous and strategically sound. The U.S. Navy proved more than capable of delivering sustained tactical excellence to meet the moment.

And yet, despite the strategic rationale and the Navy’s tactical acumen, the results for Operation Prosperity Guardian as a political project should be judged in a larger context. Measured against the restoration of merchant confidence and traffic in the Red Sea, the mission was unsuccessful. As we have seen, much of that failure follows from the countervailing incentives and priorities within which merchants operated, and which policymakers failed to fully anticipate. In any future scenario involving an assault on maritime commerce, perhaps in a Chinese quarantine of Taiwan, understanding how military power translates into effects in a commercial ecosystem will be essential. Taking the lesson from Operation Prosperity Guardian, policymakers should from here on understand defense of global shipping as a more expensive, more complex, and more multi-disciplinary affair than many initially assumed.

Joshua Tallis, Ph.D., is a senior research scientist at the Center for Naval Analyses and the author of The War for Muddy Waters: Pirates, Terrorists, Traffickers, and Maritime Insecurity.

Image: U.S. Navy

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