On International Maritime Trade and Choke Points – Global trade disruption

Source: This post on International Maritime Trade and Choke Points has been created based on the article “Global trade disruption” published in “Business Standard” on 26^th December 2023.

UPSC Syllabus Topic: GS Paper 2 International Relations – Effect of policies and politics of developed and developing countries on India’s interests.

News: The article discusses the reasons behind the recent obstructions in the Suez and Panama canal trade traffic and its implications.

Two continental shipping passages, the Suez and Panama canals, are suffering from obstructions to trade traffic. This has raised concerns about supply-chain woes and risks to the global economy. Additionally, it highlights that climate change and geopolitical tensions have the potential to negatively impact global trade and shipping.

Suez Canal:

Source: Nippon.com

What are the reasons for obstruction to trade in the Suez Canal?

Houthi rebels from Yemen have increased their attacks on ships in response to the war in Gaza. Even an Indian-flagged ship carrying crude oil was attacked.

Turmoil in the Red Sea can practically render the Suez Canal unusable, a route that facilitates 12% of global trade and around 20% of India’s trade flows.

What is the impact?

1) This has led to major shipping companies rerouting vessels away from the Suez Canal, navigating around the Cape of Good Hope (circling the African continent), a much longer but safer route.

2) Vessels still operating on the route are facing extremely high war-risk insurance premiums.

3) Both of these consequences have led to an increase in freight and shipping costs, rendering both imports and exports more expensive.

4) On India: Continued tensions surrounding the Gulf of Aden can impact India’s trade flows. However, India is safe in the case of its oil imports as it sources its oil mainly from West Asia, and this is shipped via the Persian Gulf and the Strait of Hormuz.

Panama Canal:

Source: WorldAtlas

What are the reasons for obstruction to trade in the Panama Canal?

The Panama Canal, which connects the Pacific and Atlantic Ocean, has been impacted by drought conditions coupled with the El Nino effect.

As it lies above the sea level, it is completely reliant on freshwater from nearby lakes and cannot run on ocean water.

What is the impact?

1) The channel is currently operating only at 55% of its normal capacity.

2) Blockage in the Panama Canal has also exacerbated supply-chain disruptions.

What should be done?

It is important to recognise the criticality of these “choke points” upon which global trade and navigation depend and take appropriate measures:

1. Smooth trade flows in the future may require international cooperation for effectively managing the major straits and canals during periods of natural emergency and political crisis.
2. Intermodal freight transport is a possible alternative. For instance, using air transport.

Question for practice:

Discuss the importance of canals in international maritime trade.