A tax or attacks: how the Houthis fund themselves

Geopolitics and Shipping in the Bab el-Mandab Strait

• The strait, a 25km gap between Djibouti and Yemen, facilitates 12% of global trade; over 70% of shipping volume has collapsed there since Houthi attacks began in October 2023.
• Houthis have targeted American, British, and Israeli vessels, resulting in nearly 200 attacks and the sinking of several ships in 2024, while maintaining an email-based "safe passage" request system for other vessels.
• War risk insurance costs have spiked, causing freight rates between Asia and Europe to increase fivefold in 2024, though freight costs represent only ~3% of average product value.
• Houthi income from shipping protection is estimated by one source at $180 million monthly ($2.1 billion annually), effectively doubling their ordinary revenue, though industry figures question this total.
• Egypt loses approximately $7 billion annually in Suez Canal revenue, while the US and its allies have spent nearly $5 billion on naval protection operations.
• The Houthis continue attacks on Israeli ships following the Gaza ceasefire and retain the capability to restart attacks on other Western vessels.
• Major powers are constrained: the US is distracted by regional conflicts, Egypt/Saudi Arabia/UAE have kept navies on the sidelines to avoid aligning with Israel, and China reportedly holds an understanding with the Houthis (brokered via Iran) ensuring their ships remain untargeted.
• Egypt, Saudi Arabia, and the UAE hold the most financial stake but have avoided direct naval intervention to prevent diplomatic friction regarding the Israel-Gaza conflict.

Artificial Intelligence: The Closing Gap Between US and China

• The "Stargate" project was announced at the White House, involving a joint investment of up to $500 billion by Oracle, SoftBank, and OpenAI to build US AI infrastructure.
• China has rapidly closed the AI gap; following the April 2023 deregulation of generative models, firms like Alibaba, Tencent, and Baidu have moved from reskinning open-source models to creating frontier-tier competitors.
• DeepSeek's V3 LLM, released in December, was a 700GB public file capable of matching GPT-4o and Google Gemini, trained for under $6 million—approximately one-tenth the cost of Meta's Llama system.
• Alibaba's "QwQ" (released November) became the first reasoning model to challenge OpenAI's September release, utilizing "Type 2" structured thinking rather than the previous "Type 1" instant-response model behavior.
• Reasoning models formalize complex problem-solving (e.g., step-by-step math/coding) by applying structured computation, allowing models to solve problems previously impossible for standard LLMs.
• DeepSeek plans to undercut state-of-the-art pricing by an order of magnitude when opening API access in February, challenging the economic viability of US models for non-US companies.
• China's AI progress occurred despite US sanctions preventing the purchase of top-tier Nvidia chips, forcing reliance on two-year-old hardware and a strategy of marginal, accumulated improvements.
• The competitive timeline for China catching up to the US has narrowed from months to potentially weeks, driven by cheaper training costs and faster iteration cycles.

Business and Agriculture: Rainforest Distillery in Ghana

• Amma Mensah, a British-Ghanaian founder, acquired the rainforest distillery in 2023 after initially being hired to fix a loss-making operation that had been abandoned by foreign owners.
• The company reduced annual losses by 50% in its first two years and increased farmer salaries by 50% during its initial turnaround phase.
• The facility processes locally sourced sugarcane in a 2,000-acre rainforest setting to produce "Rain," a luxury rum brand aimed at redefining African spirits on the global market.
• The product line features three distinct rums: Spiced (calabash, nutmeg, cocoa), Baobab and Hibiscus (floral, purple), and an aged variety, positioned as an accessible luxury rather than mass-market spirit.
• The cheapest bottle retails at approximately £50, reflecting high regulatory barriers and the historical struggle of African brands to compete in the global spirits market.
• Mensah aims to fill the market void for African spirits by using local ingredients, potentially establishing Ghanaian botanical rums similarly to how Mexico is known for tequila.