Waves of Disruption: Unravelling the Impact of Geopolitics, War, and Pirates on Global Supply Chain

Impact of Geopolitics, War, and Pirates on Global Supply Chain

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The global supply chain is a lifeline of the modern world, connecting producers to consumers across borders, ensuring a diverse array of products is available, promoting economic interdependence, fosters innovation through cross-border collaboration, it also plays a critical role in the growth and stability of economies worldwide but in the vast world of global trade, the impact of geopolitics on supply chains is like a ripple effect from a stone thrown in a pond which sometimes affect badly and create disruptions such as war, sanctions, and hijacking attacks making the global supply chain more complicated.

Let’s set sail into the sometimes-choppy waters where global politics meets the journey of a product from where it’s made to where it’s needed.

Geo-Political Chess or Mess

Geopolitics is all about political relations and international affairs among nations. Choosing the side either it is left wing or right wing in a global event both impacts the involved parties and their results.

In the current scenario, according to a report from “Time of Israel”, attacks in the Red Sea have disrupted global shipping, prompting firms to reroute to longer and more costly journeys around southern Africa. There are concerns that the conflict in Gaza, ignited by brutal October 7 massacres by Hamas, could escalate and destabilize the broader Middle East.

The terror group claims it targets commercial ships to support Gaza amidst Israel’s conflict with Hamas, which was sparked by the terror group’s October 7 massacre in southern Israel.

A photo released by the Houthi Media Centre depicts Houthi forces boarding the cargo ship Galaxy Leader on November 19, 2023
A photo released by the Houthi Media Centre depicts Houthi forces boarding the cargo ship Galaxy Leader on November 19, 2023

The United States and Britain initiated strikes on Houthi targets in Yemen a month ago in retaliation for the attacks on Red Sea shipping, the U.S. government declared the Houthis as a terrorist group, but it has come to light that following this designation, the Houthis carried out attacks on ships bound for the United States.

Effects of Geo-Politics on the globe

  1. The Shadow of War on Transportation

It is known that wars have long been disruptors of tranquillity, and their impact on transportation is profound. The world has yet to recover from the aftermath of the Russia-Ukraine war, in the meantime Israel-Palestine war has started new conflicts, these ongoing wars have sent shockwaves throughout the global supply chain, causing widespread disruptions and economic uncertainties as they significantly contribute to jams and delays in sea routes.

According to Freightify, the Black Sea region ranked as the world’s second-largest grain-exporting hub in 2021, boasting a cargo volume of 111.2 million tons. However, commercial shipping operations from Ukraine ceased following the bombings by Russian forces.

On the other hand, the threat of missile attacks from the Houthis to both inbound and outbound ship movements going to Israel and other countries has not only raised transportation costs but has also increased insurance costs for shipments. As a result, Cargo Shipments are forced to take longer routes, increasing shipment duration and freight costs.

  1. Pirates on the Horizon

Before dive in further, it’s crucial to grasp the geography of major sea routes that intricately link the entire globe. Among these, the Suez Canal and the Strait of Hormuz emerge as vital connectors.

Strait of Hormuz

The Strait of Hormuz, situated in the Middle East, serves as the linchpin connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea. Encircled by Iran, Oman, and the UAE, this international waterway, while accessible to all, is subject to the influence of multiple stakeholders due to its shared proximity.

Moving to the Suez Canal, strategically located in Egypt, it functions as a pivotal bridge uniting the Mediterranean Sea with the Red Sea. Owned and operated by Egypt, this waterway serves as an invaluable shortcut for ships navigating between Asia and Europe, streamlining global maritime trade routes.

Many articles are surfacing, reporting that shipping companies have raised freight rates and insurance prices due to pirate’s attacks in the region. This surge in costs has significantly increased the expenses associated with product delivery. Exporters are now urging delivery companies to consider opting for product insurance, all of which is a consequence of a recent Houthi rebel attack. Houthi fighters hijacked a British-owned and Japanese-operated ship in the Red Sea on November 19. In response, the US and the UK have conducted strikes on Houthi bases in Yemen, as the group repeatedly targeted ships in the Red Sea. The Houthis, an Iran-backed rebel group that considers Israel an enemy, possess high-end drones and missiles, using them to attack more than a dozen cargo ships passing through the Suez Canal. In addition to these challenges, Somali Pirates are notorious for hijacking ships in their path, causing great loss of both life and goods. In light of these security concerns, major shipping companies have ceased using the Red Sea, through which almost 15% of global seaborne trade usually passes and are opting for a much longer route around southern Africa instead, moreover, ships opting for longer routes incur higher fuel costs and longer delivery times, adding further financial strain to both buyer and consumer.

Houthi Rebel group attacking on a vessel using helicopter
Houthi Rebel group attacking on a vessel using helicopter
Active area under Somalian Pirates
Active area under Somalian Pirates

 

 

 

 

 

 

 

The global supply chain is grappling with disruptions caused by Geopolitics, War and Piracy. It is imperative for a coalition of nations to unite and put an end to these conflicts. The ongoing wars, whether between countries or religious groups, erect insurmountable barriers between borders, adversely affecting ordinary citizens and businesses. These conflicts also have a profound impact on the overall economic growth of nations heavily reliant on imports and exports. Without the smooth movement of goods, there is a risk of bringing the global economy to a standstill. Swift international cooperation is crucial to mitigate these challenges and ensure the uninterrupted flow of trade for sustained global economic stability.


Author: Mayank Tak

Mayank, a dynamic and astute business analyst at SCMYUGA is known for his expertise in SAP Transportation Management System, bringing a wealth of knowledge and innovative insights to every project, as brilliantly demonstrated in the published blog. Stay tuned to read more.

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