The Middle East crisis, which occurred in the last quarter of 2023, has led to significant disruption of shipping routes, particularly at key chokepoints. UNCTAD has underlined the importance of the Middle East in global maritime trade. Of the global seaborne trade volume, the Strait of Hormuz accounts for 39% of crude oil, 20% of petroleum products, and 19% of natural gas, while the Suez Canal accounts for 20% of world container traffic, 15% of petroleum products, and 10% of crude oil. Increased security risks in the region, therefore, pose a threat to international trade and energy supply chains.
The crisis has led to rising costs through various channels. With 90% of shipping traffic from the region diverted around Africa via the Cape of Good Hope, shipping costs have risen by 15% to 30%, and journey times have increased by 6 to 25 days. While rerouting around Africa has a negligible delay effect on most routes, the Asia-Europe route is a notable exception. Redirecting also increases the risk of port congestion and cancelled shipments. For instance, due to shipping delays, several car manufacturers have temporarily paused production at their European plants.
The World Bank notes that, by the end of 2024, around a year after the crisis began, the strategic Suez and Bab El-Mandeb straits, which once carried 30% of world container traffic, had been cut by three-quarters. At the same time, trade diversions have transformed port activity along the Asia-Europe Corridor, changing the fortunes of key hubs. For example, South Asian ports, such as Colombo, have seized the opportunity to capture more regional cargoes, while Gulf countries have adopted alternative solutions, such as the newly established land link from the Gulf ports to Haifa, bypassing the conflict zones. Reduced traffic, however, led to a 50% drop in Suez Canal revenues.
The crisis in the region has also led to escalating trade costs due to increased war risk insurance premiums, which are often used for maritime insurance of ships navigating through high-risk areas during the conflict. According to the World Bank, war risk premiums for the Red Sea, which were reported at a meagre 0.07% before the Israel-Hamas conflict began in October 2023, had risen to almost 0.7% by December 2023.
The Middle East crisis also threatens to disrupt supply chains and affect the availability of goods, which, in turn, leads to price volatility in the concerned markets. Delays in critical components are disrupting global supply chains. Oil-dependent sectors are facing higher input costs, as countries heavily dependent on oil imports from the Middle East are running larger trade deficits. With a quarter of the world’s urea coming from the Middle East, the shortage of fertilisers raises the cost of food production as well.
Given that 80% of India’s oil imports pass through the Strait of Hormuz, the Middle East crisis continues to put the country’s energy security at risk. Further, with an estimated 9 million Indian workers in the region, the escalating conflicts pose a risk for the potential loss of jobs and the inflow of remittances from the region, which stood at around US$ 50 billion in 2023.
Since the ceasefire between Israel and Hamas took effect on January 19, 2025, disruptions to global maritime trade have been largely contained. The World Bank estimates that, if the crisis is resolved by May 2025, the growth of maritime trade in the Red Sea Neighbourhood will increase by about 6%, and by about 5% in the EU, compared to their baseline scenario, where the crisis was to last until October 2025.
Although the current situation is very different from the Suez Canal blockade of 2021, which caused an estimated $6-$10 billion in global trade losses, it underlines the potential intensity of the economic impact if the regional crisis continues. While the escalation of the Middle East crisis will continue to impact global trade volume, the nature of the global response is likely to be marked by a broad shift toward trade diversification—in terms of logistics strategies and markets—rather than trade reduction, with a shift in priority toward near-shoring.