As the conflict in the Middle East intensifies, key shipping routes in the region are experiencing major disruption, with the region’s ports and shipping lanes bearing the brunt of the impact.
Closest to the conflict, two major ports are severely hampered. The Port of Ashkelon, which is about 13 km from the Gaza Strip, has been under attack throughout the conflict and is operational, but with limited capacity. It’s a hub for crude oil imports, but the volume of shipments is lower than before the conflict.
While Ashkelon remains partially operational, the Port of Ashdod is working under emergency conditions, ensuring the flow of essential goods into the country, and keeping key supply lines open. There are restrictions on the importation of hazardous goods because of the threat of missile attacks.
This aspect of the conflict has strained shipping companies operating in the region, forcing them to balance safety concerns with the need to maintain supply chains, albeit at a higher cost. It’s a similar story further out at sea.
Since the Israel-Hamas war began in October 2023, attacks by Houthi forces have intensified between the Red Sea and the Bab el-Mandeb Strait, leading to heightened risk for commercial vessels. As a result, shipping companies are diverting away from the Red Sea, with Maersk and Hapag-Lloyd among those opting for the longer route round the Cape of Good Hope to avoid attacks.
Meanwhile the Strait of Hormuz, which is responsible for 20% of the world’s oil supply, is likely to become another choke point for the region. Although no direct disruption has happened there yet, fears are growing that the escalating conflict will lead to blockades on oil tankers, severely impacting oil prices and supply in the process.
Generally, the conflict has exacerbated an already pressured environment for shipping companies, leading to longer transit times and higher operating costs. Indeed, with increased threat of attacks, insurance premiums for vessels transiting the conflict zones have surged.
For example, containers operating in Israeli waters or transiting the Red Sea have seen premiums spike by as much as 1000%. The brunt of these additional costs is likely to be passed to consumers, contributing to global inflationary pressure.
The outlook remains bleak. If, as expected, the conflict continues long-term, vessels will continue to re-route round the Cape of Good Hope, further increasing fuel and operational costs for shipping lines. Against that backdrop, the aforementioned insurance premiums will also continue to climb, leading to further increases in freight rates for shipments passing through high-risk areas.
There also remains the potential for the Suez Canal to be affected if the conflict spreads. Though the Canal remains operational at present, any direct threat or blockade could once again force shipping companies to find alternative routes.
It is the case, therefore, that prolonged disruption to Middle Eastern shipping routes will lead to permanent or semi-permanent changes in global shipping patterns. Historically, the region has been unstable, which has prompted ship owners to find work arounds. The current risks only serve to solidify and standardise that approach.
It will become more economically viable to re-route lines around or away from volatile areas as a matter of course rather than a work around. It is also probable that advances in technology and logistics planning will support the use of more stable routes on a permanent basis as ship owners chase greater efficiency in the long-term.
Overall, the conflict is significantly disrupting global shipping, with rising costs, re-routed vessels, and heightened risks. Prolonged instability will, in all likelihood, lead to long-term shifts in shipping routes, increased operational expenses and even higher freight rates. This will contribute to global inflationary pressure and reshaping international trade as we know it.
Source: Ti Insight
Author: Tom Holmes
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