After the pandemic, war looms ahead: At the beginning of 2022, it was expected that the worst was now over and the economy was ready for a recovery. However, as we all know, reality turned out differently.

Ukraine and the Middle East: Wars with economic impact With the invasion of Russian troops in Ukraine at the end of February 2022 and the ongoing trench warfare, not only were the geopolitical cards reshuffled. Energy policy decisions and the temporary skyrocketing inflation are also directly related to the events in Southeast Europe.

As of October 7th, there is now another hot war. After the Hamas attack on Israeli civilians, the government of Benjamin Netanyahu declared war on the Palestinians. Tens of thousands have since fallen victim to the military confrontations, including many civilians on both sides.

Attacks on cargo ships in the Red Sea are increasing The long-simmering and repeatedly flaring up Middle East conflict now threatens to take on a new dimension. Several influential players in the region seem to be at least involved behind the scenes. In addition, there have been multiple reports in recent weeks of attacks on trade ships.

Initially targeting only freighters heading for Israel, it is now reported that even completely unrelated civilian cargo ships in the Red Sea have been attacked. Specifically, Houthi rebels from Yemen have apparently attacked container ships that were heading for the important trade route through the Red Sea and the Suez Canal.

Suez Canal: A significant bottleneck in global trade The importance of this bottleneck of the world’s oceans for global supply chains was demonstrated about two and a half years ago: In the spring of 2021, the cargo ship „Ever Given“ got stuck and blocked the Suez Canal, and the busy waterway could not be passed for days, leading to long queues of container ships on both sides.

The resulting delivery delays and supply chain disruptions continued to have a noticeable impact for months. The Suez Canal connects the Mediterranean in the north with the Red Sea in the south. Trade ships passing through the North Atlantic and the Indian Ocean, to transport goods between Asia and Europe, use the route to avoid the much longer and more dangerous circumnavigation of the African continent.

Shipping companies avoid the Red Sea This may now become necessary if the attacks continue. Already, several shipping companies have pulled the plug and announced that they will not be using the Red Sea for the time being. The world’s largest container shipping company MSC, the second largest competitor Maersk from Denmark, and the German Hapag-Lloyd are all avoiding the route through the Suez Canal for the time being. Even the oil company BP will no longer use the canal, and more similar announcements may follow.

This will make trade routes that must now be navigated around the Cape of Good Hope in South Africa much longer, more complicated, and more expensive. The biggest loser in this situation is Egypt, as the country makes good money from the transit fees for the Suez Canal. However, from a consumer perspective, there is not expected to be a significant increase in prices – at least not because of the detour that container ships now have to take to circumnavigate Africa.

New oil price shock due to attacks on cargo ships? The more significant impact may be that Europe obtains its resources – namely liquefied natural gas and oil from the Arabian Gulf states – through this same route through the Red Sea and the Suez Canal. The European energy market is already under significant strain since imports from Russia have been stopped. Now, the oil and gas supply is dependent on the umbilical cord that runs through the crisis region. This could become very expensive.

Experts are already predicting another explosion in oil and gas prices, which could ultimately lead to a chain reaction and affect consumer prices. From a European perspective, this must be avoided at all costs. However, what that might look like is currently the subject of discussions. One thing is for sure: The war in the Middle East will continue to shape global politics and the economy in the new year.