The Middle East is a critical region for global logistics and the container chain and has seen many riots and conflicts that affect these sectors big time. As a crossroads for trade routes between Europe, Asia and Africa it’s a hot spot to understand how instability ripples through global trade. This blog by Sharp Blue looks at how riots in the Middle East impact logistics, supply chains and the container shipping industry and strategies and actions that can be taken to reduce and minimize the ripple effect of Middle East Riots on Global Logistics and Container Chains.
The Strategic Importance of the Middle East
1. Geographic and Economic Significance
The Middle East is a geographical crossroads for major trade routes between Europe, Asia and Africa. This has made the region a commercial and transportation hub for centuries. For example, The Suez Canal is the shortest link between the east and west. The Suez Canal one of the world’s most important maritime chokepoints connects the Mediterranean Sea to the Red Sea and moves around 12% of the world’s total trade every year. This is around 20,000+ ships per year which is a big deal in global trade.
2. Oil and Natural Resources
Beyond its geography, the Middle East is also oil and resource-rich. According to the Organization of the Petroleum Exporting Countries (OPEC), the region has around 67.3% of the world’s proven crude oil reserves and countries like Saudi Arabia, Iran and the UAE are among the top oil producers. The oil and gas industry is the main economic driver and affects global energy markets and supply chains. Any disruption in this sector can cause oil price fluctuations which can have a ripple effect on the global economy.
The Impact of Riots on Logistics and the Container Chain
1. Disruption of the Trade Routes
The Suze Canal and the Strait of Hormuz are the very significant trade routes in the Middle East that are crucial for global commerce. Riots and political unrest in the Middle East can shut down trade routes, and stop the flow of goods and services. During the Arab Spring multiple countries including Egypt and Libya had significant disruptions to their logistics networks. Ports were closed, roads were blocked and critical transportation corridors were impassable. The result was a big increase in transit times which directly increased costs for shipping companies.
The ongoing attacks on vessels in the Red Sea (Red Sea Crisis) have led to significant disruptions. As a result, ships are being routed around the Cape of Good Hope adding 14 days to the journey and significantly increasing costs. In the first week of 2024, 220 fewer ships chose the Red Sea route than the previous year, 41% less.
2. Security Concerns
Security is a major topic of concern for logistics companies operating in the Middle East. The region’s instability means there is an increased risk of cargo theft, piracy and attacks on transportation infrastructure. In 2021 the Gulf of Oman saw several ship attacks linked to rising regional tensions. These attacks not only put crew and cargo at risk but also mean higher insurance premiums and the need for extra security measures like armed guards and escort vessels which adds to the overall cost of shipping through these waters.
3. Supply Chain Delays and Increased Costs
Riots and conflicts can cause big delays in the supply chain. The conflicts in the Middle East have added shipping costs due to delays and extra security measures. On Asian export trade lanes, the rates are extremely high. These disruptions can lead to shortages of goods and materials and affect industries that rely heavily on imports from the region. For example, the electronics, textiles and automotive industries have all suffered production delays and increased costs due to supply chain disruptions from the Middle East.
4. Impact on Oil and Energy Supply Chains
The Middle East is the lifeblood of the global oil market. The Strait of Hormuz through which 20% of the world’s oil passes is a chokepoint. Any disruption in this area will have global implications for energy markets, oil prices and energy supply chains. For example, the 2019 attacks on oil tankers in the Gulf of Oman sent oil prices soaring and showed how global energy supplies are vulnerable to regional instability.
5. Economic Impact
The economic impact of Middle East logistics and container chain disruptions is big. The region’s instability means higher costs for shipping companies which are often passed on to consumers in the form of higher prices for goods and services. Disruptions to the supply chain can mean shortages of essential goods and affect both businesses and consumers. The impact is particularly big for countries that import heavily from the Middle East like China and India.
Mitigating the Impact of Unrest on Logistics
1. Supply Chain Diversification
One way to mitigate the impact of Middle East turmoil on logistics is to diversify your supply chain. Look at alternative routes and modes of transport to reduce your exposure to the region. For example, the Northern Sea Route through the Arctic is an alternative to the Suez Canal for trade between Asia and Europe. Although it’s still in development it’s an option for companies looking to bypass traditional Middle East trade routes.
2. Extra Security
Invest in extra security to protect your cargo and infrastructure in high-risk areas. Shipping companies can use technologies such as GPS tracking, container seals and automated alerts to monitor their shipments closely. Work with local security forces and intelligence agencies to get valuable insights into potential risks and threats so you can adjust your operations accordingly.
3. Flexible Logistics
Being flexible is the key to navigating the uncertainty of the Middle East. Have contingency plans that include alternative routes, backup suppliers and inventory buffers to ensure business continuity. By being flexible you can respond quickly to changes in the region’s security and political situation and minimize the impact on your operations.
4. International Cooperation and Dialogue
International cooperation and dialogue are the key to addressing the root causes of instability in the Middle East. Diplomatic efforts to resolve conflicts and bring peace can create a more stable environment for trade and logistics. Initiatives like the Abraham Accords which aim to normalize relations between Israel and several Arab states are good steps towards regional stability and cooperation.
5. Partner Resilience
Working with local businesses and governments can also help you build resilience in the face of Middle East turmoil. By working together you can share resources and expertise and respond better to disruptions in the logistics and container chain. These partnerships can also help you understand the local market and navigate the complex political and social landscape.
Conclusion
The impact on logistics and the container chain of riots and unrest in the Middle East is huge and far-reaching. The region is a critical area for global trade and energy markets so logistics companies and governments need to focus on it. By understanding the challenges and solutions companies can navigate the complexities of operating in the Middle East and keep their supply chain resilient and efficient.
The way to mitigate the impact of unrest on logistics is a combination of diversification, increased security, flexible logistics, international cooperation, technology and building resilience through partnerships. By doing so companies can not only protect their operations but also contribute to the overall stability and prosperity of the region.
