Filenews 3 January 2024 - by Simon Constable
Iran's threat to completely close the Mediterranean Sea to international shipping is consistent with its declaration of economic war against the West. It's a possibility investors should take seriously, as much of global trade relies on the sea lanes that pass through it.
Just before the Christmas holiday, a spokesman for Iran's Revolutionary Guards threatened that Tehran would close the Strait of Gibraltar at the western tip of the Mediterranean, Reuters reported. Gibraltar is an overseas territory of the United Kingdom and the British government is not only responsible for protecting it, but the country's Royal Navy is tasked with protecting allied ships passing through the Straits.
The Revolutionary Guards' threat to close the Mediterranean follows a move by Yemen's Iranian-backed Houthi rebels who earlier in 2023 began targeting merchant ships transiting through the Red Sea. The Red Sea crossing is vital for transporting goods or goods through the Suez Canal, at the eastern end of the Mediterranean.
What does the blockade of Red Sea and Gibraltar mean?
These recent attacks on merchant ships in the Red Sea have forced some shipping companies to avoid passing through the Suez Canal and opt for the circumnavigation of the Cape of Good Hope in South Africa, which is a much longer alternative route. Danish shipping giant Maersk, one of the world's largest container carriers, has decided to suspend crossings through the Red Sea after one of its cargo ships was attacked by the Houthis.
It is clear, even to those who do not know shipping thoroughly, that if the Houthis can prevent the crossing of the Red Sea, Iran could do the same for ships transiting the Strait of Gibraltar. Hence the economic war.
It is worth noting that almost $1 trillion worth of goods are traded annually through the Suez Canal. dollars, equivalent to 12% of world trade, according to estimates by the New Zealand government.
In addition, there is a risk to energy supply. Nearly one in 20 barrels, or 4.5 percent, of crude produced worldwide passes through the Suez Canal daily, according to the IOSR Journal of Business and Management. This is a particularly significant amount that could trigger a spike in energy prices if tanker transit is disrupted.
At the same time, 20% of total maritime trade passes through the other side of the Mediterranean, namely the Straits of Gibraltar.
The blow may surpass that of the financial crisis
If one takes into account the above percentages and the volumes of goods moving through these two points, it becomes clear that anyone who attempts to "subjugate" trade at both ends of the Mediterranean has the potential to cause a serious economic blow to the world economy. In this particular case, we are talking about Iran and the Tehran-backed Houthis posing this threat.
Just imagine what would happen if more than 20% of world trade suddenly stopped because of the military operations of these two organisations. The outcome could have been worse than the Financial Recession of 2007-2009. If you factor in the lack of access to the oil-rich Middle East, the blow would be far worse than a recession for the West.
For trade to continue unhindered, despite the attacks, it will likely require circumnavigating South Africa's Cape of Good Hope or moving by land, driving up transportation costs and fuelling new inflationary pressures.
Understandably, this could be described as a declaration of a "diabolical" economic war by Iran and the organizations it supports, such as the Houthis. Other groups, such as Palestinian's designated terrorist group Hamas, and Lebanon's Hezbollah, could also be involved in disrupting trade flows.
