Global Supply Chains.. Hostage to Regional and International Conflicts

The Israeli war on the Gaza Strip has mixed the cards since the first day of the ongoing battles since October 7, 2023, especially in light of the entry of more than one party into the conflict, and the involvement of the Bab al-Mandab Strait in the crosshairs of the war, through the Houthi attack on commercial ships passing through a waterway. It represents 30 percent of the total global container ship traffic and contains millions of dollars worth of goods and cargo.

The "Houthi" intervention opened the door to fears regarding the extent of the damage that will befall global supply chains and the energy sector if the matter develops and expands in scope.

The security of the Red Sea and its vital passages - the Bab el-Mandeb Strait and the Suez Canal - is important for trade and the entire global economy, as it connects the Red Sea to the Indian Ocean and the Arabian Sea to the south by the strategic Bab el-Mandeb Strait, while the Suez Canal connects it to the Mediterranean Sea to the north, through which about 12 percent of world Trade. To date, Suez Canal revenues have declined by more than 35 percent since the start of the war, which has affected the Egyptian economy, whose treasury is fed by Suez Canal revenues.

Any threat to the security of the Red Sea - the global artery of trade - means that supply chains will be disrupted and raise questions about the stability of the global energy market, as the Red Sea route itself carries nearly a tenth of seaborne oil supplies, according to the International Energy Agency.

Its waters also constitute the shortest and fastest navigational link between Asia and Europe, and any change in ship routes means prolonging the duration of the journey, and this will lead to delayed arrival of supplies and higher prices, with an increase in the cost of industrial production and also an increase in the cost of maritime transport. Not to mention the high costs of insurance, whether on global commodities or on oil and gas trade.

The cost of insurance in the Middle East region also constitutes a burden on maritime transport, especially since it is considered a conflict zone, and given the nature of the geographical straits and their narrowness, targeting ships there is easy.

The Bab al-Mandab Strait is only 29 kilometers wide, and it is one of the busiest sea lanes in the world, through which between 5.5 million and 6 million barrels of oil move from the Gulf to Europe and the United States of America. In addition, 8 percent of liquefied natural gas. This represents about a fifth of global oil consumption, the stability of which is of great importance to global energy security. It is also one of the most important water routes in the world for shipments of goods heading to Asia, including Russian oil.

About 40 percent of seaborne oil trade passes through the Strait of Hormuz daily, along with liquefied natural gas shipments from Qatar, which have helped Europe replace Russian gas.

In addition, the threats forced global shipping workers, such as MSC Mediterranean Shipping, which accounts for a fifth of the capacity of the global container market, Maersk, which manages the second-largest container shipping fleet in the world, and other major companies, to change the course of their ships away from the Red Sea. These companies are considering avoiding passage through the shorter navigational route to Europe, demanding that there be a clause in the contracts concluded with the companies allowing them to send their ships through Africa if they want to avoid passage off the coast of Yemen.

This represents a shift in the map of commercial maritime navigation and a return to before the construction of the Suez Canal. Circumventing Africa via the Cape of Good Hope means prolonging the journey time by seven to 10 days compared to using the Suez Canal.

Developments come at a time that the World Trade Organization described as difficult for global supply chains. The Panama Canal, through which about 5 percent of the volume of seaborne trade passes, is also being ravaged by drought and causing delays in cargo ships passing through it.

A new threat in the world of shipping that could affect trade from oil to cars is putting the resilience and resilience of the global economy to a new test across supply chains. He is the one who has not yet recovered from the pain of the pandemic that turned him upside down, and it is not the end of the Russian-Ukrainian war, the increase in inflation, and the tightening monetary policy in the last two years.