A pro-Palestinian mural in Yemen's capital, Sanaa. The country's Houthi rebels have said they will target Israeli-linked ships. EPA
A pro-Palestinian mural in Yemen's capital, Sanaa. The country's Houthi rebels have said they will target Israeli-linked ships. EPA
A pro-Palestinian mural in Yemen's capital, Sanaa. The country's Houthi rebels have said they will target Israeli-linked ships. EPA
A pro-Palestinian mural in Yemen's capital, Sanaa. The country's Houthi rebels have said they will target Israeli-linked ships. EPA


Houthis remain a wildcard in the Israel-Gaza war


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November 21, 2023

As the devastating Israel-Gaza war continues, numerous diplomats and analysts have taken to warning of the risks of the violence spilling over into a regional conflict. Those warnings have become increasingly belated by the day.

One need only look at Yemen, 2,000km from the fighting in Gaza, to see that a dangerous and unpredictable escalation is already taking place. On Sunday, the Iran-backed Houthis seized what they claimed was an Israeli cargo ship in the southern Red Sea. Israel’s Ministry of Foreign Affairs later described the ship as an “international vessel,” adding that it was British-owned and Japanese-operated. Despite the claim and counter claim, the incident is just the latest in a string of events that not only raises serious questions about security in this strategic waterway but also shows that the conflict is playing out far from Palestine and Israel.

Not content with menacing marine traffic in the Red Sea, the Houthis have also launched drones and missiles towards Israel, some of them travelling through Saudi airspace. This produced a military response by Israel, which stationed Saar-class missile boats near the port of Eilat. These attacks demonstrate the organisation’s increased technical ability – up until the end of 2018, the Houthis frequently used ballistic missiles they captured from army depots. But in the past five years, they have shifted to small, long-range, explosive unmanned aircraft that can evade radar detection – a development that increases the capability for escalation.

Yemenis sit in front of mock Houthi-made drones and missiles in Sanaa on November 7. Over the past five years, the rebels have shifted to small, long-range, explosive unmanned aircraft that can evade radar detection. EPA
Yemenis sit in front of mock Houthi-made drones and missiles in Sanaa on November 7. Over the past five years, the rebels have shifted to small, long-range, explosive unmanned aircraft that can evade radar detection. EPA

This presents some serious questions for those who not only want to see the Israel-Gaza conflict end immediately, but who also value stability in the Gulf. So far, none of the Houthis’ weapons have found their mark, having been intercepted en route. But not much imagination is required to understand what might happen if a missile or drone were to strike Eilat or a city deeper inside Israel. The risk of miscalculation is already apparent – explosions blamed on Houthi drones were reported in two Egyptian towns last month, and Syria and Lebanon already bear the scars of Israeli retaliation for the actions of proxies on their soil.

There are reasons to think that the scale of the Houthi launches do not represent an all-out attack on Israel. Aside from their limited number, the Houthi assaults are taking place amid a backdrop of serious talks with Saudi Arabia about reaching a peace deal that would solidify the current year-long truce in the war-torn country. Whether the militant movement wants to jeopardise a rapprochement with Riyadh is questionable – the potential gains for the movement and the Yemeni people from a longer, more stable period of peace are many. Nevertheless, the rebels are still something of a wildcard in the deadly events that are currently unfolding in the Middle East.

All this points towards one thing – the need for an immediate ceasefire in Gaza. The longer the conflict drags on, the greater the likelihood of a misstep that could have even more serious consequences. This concern was articulated before regional decision-makers at the weekend when Dr Anwar Gargash, diplomatic adviser to the UAE President, warned attendees at the Manama Dialogue that the longer the Israel-Gaza conflict continues “the higher the risks are that the war will spread regionally and that the current violence will only breed more violence and fuel greater radicalisation in the region”.

Complicating the picture is the reality that the Houthis are not the only proxy group operating in the Middle East – a string of recent attacks on US forces by Iran-aligned militias in Syria and Iraq are another reminder that the Gaza-Israel conflict is finding expression elsewhere in the region.

Stopping the fighting now, getting humanitarian aid to Gaza’s people, securing the release of hostages and prisoners, and giving negotiators a chance to broker a longer-term deal will prevent those with their own agendas – often a desire to simply declare their relevance – from fanning the flames of war even further.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Updated: November 21, 2023, 10:38 AM