Apart from the obvious geopolitical implications, the armed conflict in the Middle East the world has been witnessing for over two months is going to have inevitable economic and logistical consequences affecting regional as well as non-regional countries, Russia included.
Analysts do not believe there’s reason to fear a repeat of the 1973 oil crisis though. However, the problems in the Middle East, especially in the context of the current armed conflict between Israel and Palestine, can push gasoline prices up around the world due to disrupted oil logistics. The hostilities have paralyzed oil transit in the Middle East, complicating the supply to oil refineries around the world. Disrupted logistics and subsequent supply problems are factors that can drive oil prices as well as shipment costs higher.
The Suez Canal is a lockless shipping canal in Egypt that connects the Mediterranean and the Red Sea. The area is seen as a borderline dividing Eurasia and Africa. This shipping artery accounts for about 12% of global trade, with about 50 ships passing through the canal daily. According to the Suez Canal Authority, the waterway is a neutral international corridor that is not affected by politics or war. Unfortunately, verbal declarations cannot ensure the safety of navigation in the immediate vicinity of the armed conflict between Israel and Palestine. To avoid exposure to additional risks, Russia is now considering several alternative logistics solutions bypassing the Suez Canal and the Red Sea to ensure the supply of oil and petrochemicals to its counterparties. One of the options is the Northern Sea Route, which runs along the northern coast of Russia. It is the shortest route from the Atlantic Ocean to the Pacific Ocean and can ensure more efficient oil supplies to Asian countries. The Northern Sea Route is 40% shorter than the route through the Suez Canal; using it can cut both travel time and fuel costs. In addition, Russia and Iran have signed an agreement to build the last section of the North-South International Transport Corridor, which will enable the transportation of goods by rail from St. Petersburg to the Persian Gulf. The project should significantly expand the alternatives to the Suez Canal.
The consequences of the Middle East crisis are not limited to oil and gas; other goods and industries have been affected as well. The Russian government is looking to increase trade with Africa, but the projected exports require the development of efficient logistics routes. At the moment, Russia cooperates mainly with countries that have ports on the Mediterranean Sea. Egypt, Algeria, Morocco, Tunisia and South Africa account for more than 70% of Russia’s trade with Africa. Russia is a major supplier of food to those countries. The military conflict disrupting these supplies could cause a spike in food prices in Africa, putting additional pressure on the continent’s economy.
Tourism is changing, too. The hostilities have compromised the region’s perception as a safe holiday destination, which predictably affected the tourism industry. In fact, the war has not just reduced the flow of tourists. In Israel, the tourism industry accounted for 15% of jobs before the conflict. Additional negative consequences for tourism will come from the physical destruction of infrastructure in the Middle East. Israel will see its travel revenues decline, and not only Israel; countries such as Egypt, Jordan and Lebanon will be affected, too. Tourists will be less likely to choose countries that are neighbors of Israel and Palestine over personal safety concerns.
The ongoing conflict has not only created problems for regional actors but also made a comprehensive impact on the world economy, particularly economic and logistical aspects that affect countries that are not even remotely involved in the conflict, such as Russia.
The logistical challenges caused by the war in the Middle East are disrupting transport routes, especially those that are important for delivering energy resources, including oil and gas. In addition to that, logistics issues have affected trade and supplies of other goods via the key transport routes in the region. Higher transport costs and longer delivery times are worsening trading conditions and may create more difficulties for companies and consumers around the world. For example, freight charges have grown 50% across 16 routes, the highest spike noted on the routes bound through the Mediterranean.
By Alexei Tuzov, independent expert of the transport industry