Wars and corridors: Davos tackles global trade challenges

Nobody is immune to the flashpoints and repercussions of military action worldwide. As tensions mount and supply chains are held hostage, the world’s rich ask: what to do about it?

Wars and corridors: Davos tackles global trade challenges

Global trade has always been a prominent theme at the World Economic Forum (WEF), held annually in Davos in the Swiss Alps. It will certainly dominate this year’s meetings.

From the Bab-el-Mandeb Strait between the Red Sea and the Gulf of Aden to the Taiwan Strait across which China threatens its island neighbour, trade navigation will be the talk of the town this week.

The situation in the Red Sea has been deteriorating ever since Israel’s war in Gaza, with Houthi attacks on ships disrupting international supply chains, prompting the recent US-British military response on Houthi positions in Yemen.

In Asia, there are growing Chinese threats to Taiwan after Lai Ching-te, the leader of the Democratic Progressive Party, was elected president of the island.

China considers him to be a dangerous separatist. If war were to break out, it would cost not billions but trillions of dollars.

If that weren’t enough, lest we forget, another war still rages on Europe’s eastern border. Russia and Ukraine remain locked in battle nearly two years after Russia’s invasion. The repercussions of this have so far been largely contained.

Read more: The war in Ukraine is far from over

There are green shoots. Inflation now finally seems to be under control. Worst-case scenarios regarding interest rate hikes appear to have been averted, as European Central Bank (ECB) President Christine Lagarde and other leading central bankers believe.

Focus on Gaza

Of the hotspots, Gaza (and related problems in the Red Sea) are due to attract the most attention at Davos, thanks in part to South Africa’s noble lawsuit at the International Court of Justice (ICJ) against Israel for its genocidal war on the Strip.

This is an unprecedented legal initiative against Israel as an occupying power. Israel claims it is acting in self-defence. Others claim it is collective punishment.

From the Bab-el-Mandeb Strait to the Taiwan Strait, trade navigation will be the talk of the town this week. 

With tensions around global trade simmering and temperatures rising over military action, talk in Davos will turn to temperature rises of a different kind.

Climate change will be right at the top of the agenda after scientists confirmed that 2023 was the warmest year on record. The phenomenon has become all too real, with its enormous environmental, economic, and human toll.

This problem, more than any other, requires the solidarity and cooperation of continents, not just countries, due to growing droughts, floods, and erosion of resources. We are all witnesses to this slow-motion catastrophe.

Despite the hundreds of conferences, forums, initiatives, and roundtables, the world is still not acting in the way it needs to. Solutions seem to need to be tethered to the economic interests of states.

About the bottom line

This being the 'Forum of the Rich', Davos delegates cannot but focus on the 30% drop in shipping via the Suez Canal or the 4% rise in oil prices, as more oil tankers are diverted from the Red Sea after US-British strikes.

Shipping traffic is being disrupted, and longer trade corridors are being chosen at up to four times the cost, while warships now stalk traditional maritime routes.

Read more: Piracy off Yemeni coast raises global shipping costs

This year's WEF takes place 100 days after the Gaza war started and less than a week after the first US-UK strikes on Houthi positions in five Yemeni governorates, including Sana'a.

Similarly, the annual meetings of the IMF and the World Bank were held on 8 October in Marrakech, a day after Hamas attacked Israel — and just as the Israeli military was beginning its offensive on Gaza that has killed more than 24,000 Palestinians to date.

Being the 'Forum of the Rich', Davos delegates cannot but focus on the 30% drop in shipping via the Suez Canal or the 4% rise in oil prices, as more oil tankers are diverted from the Red Sea.

The global economy can't distance itself from conflict or climate change. In Gaza alone, the pollution caused by vast amounts of hazardous materials from the brutal Israeli bombardment is unprecedented for such a small geographical area.

Israel's war unleashed carbon emissions of 281,315 tons in the first two months — equivalent to the annual carbon emissions of the Central African Republic.

Blocked arteries

Coming back to trade corridors, Davos delegates would be wise to consider possible disrupting factors to other routes, such as lower sea levels in the Panama Canal.

What can be done to spare the world economy such issues in the future? Peaceful technological development and rising economic efficiency and prosperity should be the utopia to which all delegates, both companies and countries, aspire.

Depending on who you listen to, utopia can feel some way off. Former chief economist at the Organisation for Economic Cooperation and Development (OECD), John Llewellyn, now estimates the probability of "serious disruptions in global trade" at 30% — up from 10% just a week ago.

The OECD's former chief economist now estimates the probability of "serious disruptions in global trade" at 30% up from 10% a week ago. 

He has voiced concern that things could worsen to the point where the conflict in the Red Sea spills over to the Strait of Hormuz and the Middle East, potentially having a serious impact on oil prices.

Such considerations help explain the late international rush to 'liberate' the Bab-el-Mandeb Strait from Houthi outreach. It is a corridor for about 15% of global trade, 12% of the oil trade, and 8% of the gas trade.

Read more: The invisible war in Middle East waterways

Even the Swedes

A lot is at stake. The combined efforts of the world's central banks to reduce inflation will be for nothing if the supply of oil, grain, raw materials, and commodities is significantly disrupted, thereby raising prices significantly.

Global economic growth forecasts have already been reduced from 2.6% in 2023 to 2.4% this year, according to the World Bank. It cites the war in Ukraine and residual problems arising from the pandemic as contributing factors.

In short, both the markets and banks had yet to catch their breath before the most recent hotspots and flashpoints lit up the dashboard. In an uncertain world, what is certain is that everyone needs to be interested in world affairs.

This even applies to Sweden, where the commander-in-chief of the Armed Forces, General Per Micael Bydén, recently called on his fellow Swedes to "psychologically prepare for war".

That's how you know it's bad.

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