Since the effective closure of the Strait of Hormuz, the world has been grappling with a crisis that’s hard to ignore. The once-busy maritime passage now sees only hundreds of vessels where thousands used to navigate daily, a stark contrast that has been felt since March 5.
Rystad’s Abramov has noted the situation’s gravity, likening it to the early days of the Covid-19 pandemic. The repercussions are widespread: gasoline and diesel prices have spiked, while shortages of jet fuel and fertilizer have emerged. Experts warn that rising food costs could soon be followed by fuel rationing and industrial shutdowns.
The economic implications are significant, with policymakers anxiously discussing the potential onset of a recession. A senior European industrialist has voiced concerns about the specter of stagflation, expressing apprehension over the prolonged nature of these disruptions.
In response, companies have had to innovate and adapt quickly. Many are exploring alternative routes for transporting goods, turning to land-based options like existing oil pipelines and trucking. Danish logistics giant DSV, a leader in the Middle Eastern market, is rerouting cargo through Saudi Arabia and Turkey. Jens Lund, the head of the company, highlights the critical nature of such efforts, stating, “When everything flows smoothly, the importance of our work is understated. But when cargo can’t get through, livelihoods are at risk.”
As the disruption has stretched on for months, companies have been forced to find radical workarounds. Some are trying to transport goods via land — either through existing oil pipelines or using trucks.
Danish logistics group DSV, market leader in the Middle East, is moving cargo through Saudi Arabia and Turkey. “When everything is flowing, you don’t consider your job vital. But if you can’t get cargo in, the people there can’t eat,” says Jens Lund, the company’s head.
Lorries, however, can replace only a small share of the capacity provided by large container and cargo ships, while border crossings and challenging terrain can further slow their transit.
Battle for control
Western countries have traditionally worried about routes in the Middle East, fearing that any regional conflict could limit access to the Red Sea, Suez or the Bosphorus.
But Trump has placed the Panama Canal at the heart of his vision of hemispheric defence – accusing China of trying to control the waterway, and threatening to take control of it himself. A Hong Kong-based conglomerate previously ran two ports on the canal, until Panama annulled its contracts earlier this year. China has called the US president’s claims groundless and said it wants to keep the canal neutral.
Nonetheless Trump’s moves may encourage Beijing to “rekindle building a Nicaragua Canal”, says Jensen, referring to a concession granted to a Chinese businessman in 2013 to develop a new rival waterway – though little came of it.
Following Trump’s threats and the cancellation of the port contracts, China has increased inspections of Panamanian-flagged vessels, leading to reports of ships reflagging, he adds. China’s foreign ministry said in March that its inspections were in accordance with laws and regulations.
A Chinese academic in Beijing, who asked not to be identified, says Panama’s move on the ports “would not be forgotten in Beijing, which would improve its projection of hard power to ensure that this did not happen again in other important strategic chokepoints”.
“Right now, the cost is very limited [for countries like Panama], but I think in the future, this is not going to be tolerated,” he says.
