Djibouti dodges scrutiny despite China, Iran, Houthi ties and links to illicit activities

The Bab el-Mandeb Strait, which connects the Indian Ocean and the Red Sea through the Gulf of Aden, is a crucial chokepoint for global maritime commerce. It handles as much as 20% of international trade, 12% of seaborne oil trade, and 8% of liquefied natural gas shipments. Despite the strait’s importance, the waters around it have long been plied by smugglers of weapons and other illicit goods, dating back as far as the late 1800s, when the French took control of what is now Djibouti. Nearly a century and a half on, the country is an important player in trade in the Horn of Africa region, but it also serves as a conduit for Chinese influence, has been linked to malign actors like Iran and the Houthis, and has faced allegations of involvement in various grey and black market activities, including money laundering, illicit finance, oil smuggling, and weapons trafficking. These issues must be urgently addressed in the interest of regional stability and Djibouti needs to undertake serious reform efforts to overhaul its economic model, strengthen its sanctions and enforcement, shore up financial oversight, and enhance collaboration and cooperation with neighboring states.

From French colonialism to Chinese influence

According to Nicholas Smith’s history of colonialism in the southern Red Sea, the port of Obock was acquired by the French in 1862 from the local ruler, the sultan of Tadjoura, and this was later formalized by the French government in 1882, when Paris sent its first diplomat, Leonce Lagarde. Initially, Lagarde tried to experiment with the creation of a penal economy to boost the region’s population and agricultural production, but his experiment failed, as French smugglers and arms dealers conspired to carry out several prison breaks. Lagarde then moved the capital from Obock to the port of Djibouti. Despite resistance from French arms dealers, Lagarde and the French government ultimately embraced the idea of turning Djibouti port into a weapons transshipment hub to generate revenue from illicit activities like arms trafficking, supplying northeast Africa with European weapons through the port.

In the 21st century, this small country has become a battleground for major global powers, particularly the US, which used it as a strategic base to combat terrorist organizations like al-Qaeda starting in the early 2000s and to counter widespread piracy in the late 2000s and early 2010s, much to the relief of European Union states and other regional actors. In addition to the US base at Camp Lemonnier, Djibouti also hosts military bases from a number of other countries, including France, China, and Japan. The establishment of so many military bases by competing nations has resulted in a rentier economy based on port revenues and base leasing fees, making Djibouti heavily dependent on foreign powers for its economic stability.

Over the years, Djibouti has steadfastly pursued its ambition of becoming a leading regional commercial hub, handling an estimated 95% of Ethiopia's imports and exports. The country has taken on substantial loans to participate in the Belt and Road Initiative, China's ambitious infrastructure development plan, resulting in a heavy debt burden that reached 104% of its GDP at the end of 2018. In late 2018, Djibouti nationalized the company that holds two-thirds of the port, removing the previous operator, the United Arab Emirates-based multinational logistics firm DP World, and handing over control to a Chinese entity.

Much like during the French colonial period, when it was known for arms smuggling, Djibouti today is once again allegedly emerging as a center for grey and black market activities in the Horn of Africa, including a hub for money laundering and illicit finance, a transit point for weapons trafficking by Iran and its proxies, and a flag-of-convenience state for countries like Iran and Venezuela looking to circumvent sanctions by smuggling oil.

Although the US government, including both houses of Congress, has expressed concerns about China's takeover of Djibouti's main port and the establishment of a Chinese naval base in the country, no concrete policies have been implemented to counter Chinese influence in Djibouti or Africa more broadly. In fact, since 2014, the US government has underestimated the impact of China's debt trap on Djibouti's sovereignty, as well as the broader geo-economic and geopolitical consequences for the US and its allies in the Horn of Africa and Red Sea region. There have been several recent notable examples of this, including when China asked Djibouti not to allow US military jets to fly too low over its base, revealing the extent of its leverage over the government. In addition, the Djibouti government also refused entry to a British MP who had criticized China's policies at Beijing’s request. Moreover, the Djibouti government has refused to condemn the Houthi attacks on maritime traffic since Oct. 7 and allowed Iranian spy ships to dock at China’s military base, potentially providing crucial intel to the Houthis as they carry out attacks on shipping.

“Good business” and “bad luck”

Djibouti’s foreign minister, Mohammed Ali Youssouf, has even gone so far as to declare his support for the Houthis as they carry out attacks on maritime traffic in the Red Sea and Bab el-Mandeb, justifying them as "legitimate relief for the Palestinians" amid the devastating war in Gaza. However, his position was perplexing given that the closure of the Bab el-Mandeb would cripple Djibouti's economy and that of other African countries, even as he sought to be elected chairman of the African Union. According to an interview with the head of Djibouti Ports and Free Zone, Aboubaker Omar Hadi, conducted by Bloomberg, Djibouti has benefitted from the chaos in the southern Red Sea. "We are doing good business because of the bad luck of others," he remarked, undercutting the perception that Djibouti has been an indirect victim of the Houthi attacks on maritime trade.

Taking a closer look at global maritime trade data, Djibouti's trade shipments, exports, and imports, including transshipments, saw a significant increase from 2023 to 2024. The transshipment volumes increased from a mere 19% in early December 2023 to a staggering 60% in April 2024. In contrast, Houthi attacks on commercial vessels have taken a heavy economic toll on countries in the Red Sea and Gulf of Aden, with container ship transits down by 70% through the Gulf of Aden and the Suez Canal as of February 2024.

The sudden increase in transshipment volumes led to storage capacity constraints, causing delivery delays and additional costs for shipping operators and traders. The overload of Djibouti port's storage capacity affected its customers and resulted in operational inefficiencies and congestion, leading to a decline in its global port rating, from 26th to 379th, according to the World Bank’s port rating report for 2023.

The Houthis have granted China blanket safe passage for its shipping, which has contributed to the spike in Djibouti’s transshipment traffic. The port has handled huge volumes of containers moving from Red Sea ports to Houthi-controlled ones, such as Yemen’s Hodeida, using Djibouti-owned and operated vessels. Before the Red Sea crisis, the volume of trade between China and the Houthis was a mere trickle, with fewer than 365 twenty-foot equivalent units being imported per month from China. In April 2024, however, a remarkable shift occurred as China's exports to the Houthis skyrocketed to over 1900 containers, up 427% since October 2023.

This suggests Djibouti's "good business" may have been built on misfortune of others. The Houthis’ exploitation of the Red Sea crisis for monetary gain using Bab el-Mandeb as a ransom gate violates the principles of fair trade under the World Trade Organization and undercuts the United Nations Verification and Inspection Mechanism for Yemen (UNVIM), designed to monitor and inspect commercial cargo travelling to the latter’s Red Sea ports.

Ties with rogue actors

Djibouti has also reportedly been used by non-state actors designated as terrorists by the US and EU seeking to evade sanctions. According to the US Treasury Department’s “2024 National Terrorist Financing Risk Assessment” report, Hezbollah has used front companies and shipping firms in the country to facilitate money laundering and illicit commercial activities, including the smuggling of illegal charcoal, drugs, weapons, and oil, benefitting both it and Iran’s Islamic Revolutionary Guard Corps Quds Force.

Furthermore, Djibouti's “deep state” in Somalia, which has been active since 2010 and, as documented by the UN Monitoring Group, includes individuals connected to the Djibouti government and intelligence service, has allegedly facilitated money laundering and terrorism financing for al-Shabaab and pirates as well as weapons smuggling to Somalia through the African Union Mission in Somalia (AMISOM), evading the UN arms embargo. In a noteworthy case that was documented by the UN Security Council in 2022, Somalia State Defense Minister Mohamed Ali Hagaa, who is connected to the Djibouti government, was caught red-handed by the UN Monitoring Group attempting to smuggle $275 million worth of weapons into Somalia, destined for al-Shabaab-controlled areas. Despite being portrayed as "peacekeepers” in Somalia, entities linked to Djibouti were allegedly involved in selling weapons and ammunition allotted for the Somali National Army on the Mogadishu black market, with conservative estimates by the author, based on UN data, putting the total value of such sales at between $50 million and $120 million from 2013 to 2022.

Enabling the Houthis

Although Djibouti appears to be a dependable partner, the material assistance provided by Djibouti-based entities to the Houthis undermines its purported neutrality and ostensible efforts to promote peace, as outlined by the UN Monitoring Group. This includes a Djiboutian company shipping 40,000 electric detonators in August 2020, which were later discovered for sale on the black market in Houthi-controlled regions. In March 2021, the same Djibouti entity was apprehended by the Yemeni government while transporting 225 tons of chemical substances used in manufacturing explosives and missiles. On June 16, 2024, The Wall Street Journal reported that the Houthi rebels had established a new route through Djibouti, utilizing civilian vessels to transport arms from Iranian ports. All of this raises concerns over Djibouti’s recent acquisition of two military intelligence surveillance aircraft, which are ostensibly intended for border security purposes.

These actions create significant doubts about Djibouti's neutrality as a partner, raising the question of why NATO has not criticized it for failing to halt alleged Iranian weapons smuggling, terrorism financing, and money laundering, similar to the stance it adopted toward countries like Belarus, Iran, and North Korea in the recent NATO Summit Declaration. Djibouti's purported neutrality and peace advocacy have not been closely scrutinized, and a fresh look should be taken for the sake of the stability of the region and the security of international waters.

Fixing Djibouti's bad habits

Despite the World Bank's efforts to promote economic diversification in Djibouti, the country remains firmly rooted in old economic practices, relying on its rentier economy and alleged illicit activities like gun running. The threat of competition from the Berbera container terminal in Somaliland poses a significant challenge to Djibouti's port, Société de Gestion du Terminal à Conteneurs de Doraleh, causing great concern for its government, which views Berbera as an existential threat.

As Djibouti transitions to the post-Ismael Omar Guelleh era, it needs to develop a strategic Plan B. Guelleh has been a kleptocratic and autocratic leader who has aligned himself with bad actors while antagonizing both Western and Gulf countries. Over the past 30 years, he has pursued failed policies that have exacerbated instability in the Horn of Africa region and caused damage and disruption, especially to neighboring Somaliland.

For far too long, Djibouti has flown under the radar, serving as a conduit for actors like China and Iran while being shielded from greater scrutiny by the US and the Gulf states due to its geostrategically important position. The greatest concern though lies in its links to the Houthis, which represent a threat not only to global maritime trade but also to vital undersea cables that carry crucial internet data and trillions of dollars in daily financial transactions. The need for serious reforms is clear; Djibouti should become a dependable partner in the Horn of Africa region, instead of a liability that exacerbates chaos, conflict, and instability in the Red Sea and Gulf of Aden.

Firstly, sanctions and enforcement against the Houthis in Yemen should be reformed by investigating and monitoring Djibouti vessels; international shipping lines like CMGA, Maersk, and PIL; Chinese shipping lines; and flag-of-convenience states that have facilitated the delivery of commercial goods to Houthi-controlled ports since 2023.

Secondly, UNVIM needs to be completely overhauled. Although it has been suspended since February 2023 due to the increase in prohibited cargo reaching Houthi-controlled ports, it was irrelevant well before that due to funding and human capacity constraints. It proved ineffective as any state actor carrying prohibited cargo heading to Houthi-controlled ports could intentionally avoid requesting UNVIM inspection to dodge sanctions. In a particularly egregious example, on June 30, 2024, a Russian-flagged vessel carrying grain from the sanctioned terminal in Russian-occupied Crimea received clearance from a UN inspection in Djibouti to proceed to the Houthi-controlled port of Saleef. UNVIM needs to be totally reformed and an advanced automated inspection cargo profiling system introduced, but first and foremost it must be moved out of Djibouti and to Saudi Arabia or an area under the control of the Yemen government.

Thirdly, Djibouti's financial institutions need to be reformed and strengthened to better address the problems of money laundering and terrorism financing. During the chaotic piracy epidemic in Somalia, Djibouti banks were allegedly involved in laundering ransom money. Given its weak regulatory framework, there are ongoing concerns that Djibouti's financial institutions may have continued to facilitate money laundering and illicit financing linked to arms sales. The IMF has urged Djibouti to pass legal amendments for Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT), but enforcement and oversight are lacking. To hasten the implementation of AML/CTF reforms, the IMF should consider placing Djibouti banking institutions under greater scrutiny on a Financial Action Task Force increased monitoring list.

Lastly, for Djibouti's economy to thrive through sustainable and peaceful development, it needs to embrace a more collaborative approach with its neighbors, especially Somaliland and Ethiopia, following the example of their successful economic growth models while distancing itself from Somalia’s failures, including its ongoing instability and sovereignty gap, which represent a costly and existential threat to Djibouti’s future.

Guled Ahmed is a Non-Resident Scholar with MEI’s Egypt and Horn of Africa Program. With extensive knowledge and experience in geopolitics and geo-economic matters related to the Horn of Africa, Red Sea, and Sub-Saharan countries, his expertise lies in areas like state and nation-building, money laundering and terrorist financing, energy development, climate change and climate security, and transboundary water issues.

Photo by Diana Zeyneb Alhindawi/Bloomberg via Getty Images