Hormuz, Suez, Panama and Malacca: What would happen if key trade straits were closed? A nightmare scenario for the global economy that would change our daily lives.
Let’s imagine that the sea stops being an open road and that the great routes on which oil, gas, cereals, fertilizers, electronic components and raw materials travel become uncertain, intermittent, dangerous passages. Not for a few days, as happened in March 2021 when the huge Ever Given container ship ran aground in the Suez Canal, generating tens of billions of dollars in damage. And not even for a few months, as in the Red Sea under the Houthi attacks, which began in October 2023.
Suppose instead that key maritime trade passages remain closed or difficult to pass through for many years. What would happen to the world and to us in particular? In such a scenario, the global system would not stop completely, but would change profoundly.
And after a few years we would be faced with a real collapse, but with a more expensive, less efficient and more unstable economy. In Italy and Europe we would continue to live the same life as always, perhaps with higher costs than today. But we would probably find ourselves facing an even more massive wave of immigration, from Africa and the poorer countries of the Far East.
Traffic bottlenecks
How would this scenario occur? There are more than twenty bottlenecks in international maritime trade in the world, through which 90% of goods pass in terms of volume, for a value of approximately 20 thousand billion dollars a year, i.e. almost 10 times the Italian GDP. According to a study published in Nature Communications According to a group of Dutch researchers and the University of Oxford (UK), approximately 192 billion dollars of trade are exposed every year to the risk of disruption in the 24 main maritime bottlenecks, a figure comparable to the GDP of Greece.
Added to this vulnerability are direct economic losses of approximately 10.7 billion dollars per year, linked to delays, diversions and production interruptions, as well as 3.4 billion due to increased transport costs. Without considering the effects on inflation and economic growth.
However, not all bottlenecks have the same weight. According to the study, the system formed by Bāb el-Mandeb (between Yemen and Djibouti) and the Suez Canal alone concentrates approximately 77% of global economic risk. Other crucial hubs are the Strait of Malacca between Malaysia and Indonesia, through which 50% of global freight traffic passes, and the Taiwan area, vital above all for electronic components such as chips and semiconductors, without which many European and Italian industrial supply chains would stop.
Supply and demand
If these steps were to be blocked, the global economy would be the first to suffer, although some countries would suffer more, while others would even gain. The consequences, in reality, would depend a lot on the continuation of the situation. Paradoxically, in fact, they would be greater in the first months, because then the routes would tend to stabilize on alternative routes.
Raw materials
«When a good is in short supply, its price increases and this leads to a reduction in demand», observes Luigi De Paoli, professor emeritus of applied and environmental economics at Bocconi University in Milan. «Faced with a crisis like that of the Strait of Hormuz, for example, a series of products, not only oil and gas, but also fertilisers, helium necessary for the production of semiconductors, steel products such as aluminium, become scarce on the market and their cost increases. In the short term there are few alternatives: pay more or do without those products. In the long term, however, there is a way to find countermeasures: open new routes, find new suppliers or replace products. The system readjusts and we return to a situation with lower prices than those experienced during the crisis.” The worst period, therefore, lasts until alternative, albeit less efficient, supply chains are rebuilt.
Hidden costs
The Hormuz blockade is emblematic of these dynamics. Saudi Arabia responded quickly by increasing the use of an alternative pipeline to the Red Sea, with a capacity of around 7 million barrels per day. At the same time, oil tankers that remained locked out of the Persian Gulf have reorganized their routes to the Gulf of Mexico to supply US oil.
But the costs are high. «In recent decades, globalization has been built on efficiency», explains Giovanni Della Gatta, researcher at the Institute for International Political Studies (ISPI). «Production was moved to where it cost less, goods were transported along the fastest routes. Now the shock changes the way we plan. Governments and businesses are trying to reduce dependence on individual areas and explore alternative routes.”
Today, after the aforementioned Red Sea crisis, many ships avoid Suez and circumnavigate Africa, with longer times and higher costs. «The ports involved are less equipped and efficient», explains Della Gatta, «the ships remain at sea for longer.
We need more container ships and the fleets are aging.”
It’s nothing new. Between 1967 and 1975 the Suez Canal was closed for eight years following the Six-Day War. Fifteen ships, with their crews, remained trapped for the duration of the crisis. Global trade adapted, but at much higher costs, with longer and less efficient routes.
Who loses, who gains
A prolonged closure of maritime bottlenecks would have serious consequences, especially for developing countries. A very recent study by the Kiel Institute for the World Economy, focused on the Hormuz blockade, shows that a prolonged crisis would particularly affect the cost of food. Globally, the increase might seem modest, around 0.7%, but in countries like Zambia it would exceed 30%, to the point of making food unaffordable for a significant part of the population. In Pakistan, India and other Far Eastern countries, food prices would rise by double digits.
The reason is structural: not only energy, but also fertilizers and ammonia, which are essential for agricultural production, pass through Hormuz. On the contrary, in this same scenario, countries exporting energy and raw materials could benefit from higher prices. among these, the United States, thanks to shale oil, Russia for oil and gas, Brazil for cereals, Morocco for the phosphates used in fertilizers.
A denied right
The fact is that the maritime bottleneck crisis is no longer just a hypothesis. It’s a fact. Gian Enzo Duci, professor at the University of Genoa and expert in maritime economics, explains: «Control of the sea and freedom of navigation have always been the key to well-being: think of the wealth of the Roman Empire when it controlled the Mediterranean. The United Nations Convention on the Law of the Sea (Unclos) signed in 1982 establishes this principle, indicating that in international waters all ships, of any flag, can navigate freely”. The convention defined a status quo acquired since the mid-nineteenth century, a period in which Great Britain dominated the oceans and had an interest in freely transferring goods between the Commonwealth territories.
Even countries like the United States, which have never signed UNCLOS, have so far always respected its principles. «But in recent years this system has gone into crisis», highlights Duci.
«Since 2023, the Houthis have attacked ships passing through open waters in Bāb-el-Mandeb. The USA does the same in the Gulf of Mexico and at the exit of the Strait of Hormuz, or Great Britain and France towards the oil tankers of the shadow fleet that the Russians use to circumvent sanctions on the sale of their oil”. Thus navigation becomes less safe and costs increase.
The energy node
The impact of a prolonged crisis in these straits of the seas is greater for developing countries, which import energy and fertilizers. But Italy does it too. «We depend on gas for around 38% of energy production», observes Duci, «and until yesterday we imported around 11% of our supplies from Qatar».
Despite the diversification of recent years, we remain exposed to the vagaries of global prices. Dependence on hydrocarbons could be reduced by increasing the use of renewable sources; but it’s a long process. «If we used less oil and gas we would suffer less. But change is not so easy”, observes De Paoli. The transport system, for example, still today remains approximately 90% dependent on fossil fuels.
To complicate the picture there is a factor that is difficult to predict: people’s behavior. «It is the so-called panic effect, which we experienced with the race to hoard vaccines during Covid», explains Della Gatta. “In a prolonged crisis, countries could stockpile or block exports.” With the result of further amplifying price tensions and global imbalances.
