The Middle East: A Critical Region for Oil Production and Maritime Trade
The Middle East is the world’s leading oil-producing region and a large center for maritime trade. Its waterways are a critical thoroughfare for cargo ships that transport oil and container ships with goods and devices on board.
Impact on Oil Prices
Flaming in the Middle East affects predictable effects on the oil price, which means that investors become anxious due to possible blockages and attacks on these maritime routes. As a result, shipping insurance premiums, which are ultimately passed on to the consumer, also increase. Brent Crude, the international benchmark, rose 8% to $75 (£55) per barrel.
Effects on the Economy
This has an implementation in the entire economy, since oil flows into the manufacturing process for many goods and services, whether plastic toys or air travel. According to the International Monetary Fund (IMF), inflation in advanced economies increases by about 0.4 percentage points per 10% rising oil prices.
Challenges in the Region
Some experts are still sanguine about the effects on the trade, but the region is already dealing with challenges. Houthi rebels, supported by Iran, have attacked ships through the Red Sea to the Suez Canal – an important hub route for container shipping. This has forced many ships to take the long way to Africa on routes between Asia and Europe, which adds one to two weeks of travel time and about $1 million in costs per trip.
Threats to Global Trade
Iran has also repeatedly threatened to block the Strait of Hormuz, which connects the Persian Gulf and the Arab Sea. The strait takes over a quarter of the world’s oil trade, and analysts from Goldman Sachs say that blockages in Hormuz’s strait could exceed over $100 (£74) per barrel. This would be an extreme step for Iran, which annoys its main customer – China – as well as Qatar and the United Arab Emirates (UAE), two other important oil-producing states that also rely on the strait.
Impact on Global Capacity
Longer travel times also mean that global capacity is reduced because ships are tied to a trip for longer, and all ripple effects in global transport networks and supply chains have. This reduction in global capacity can have far-reaching consequences for the global economy, making it essential to monitor the situation in the Middle East closely.
