Opinion| How global waterways boost trade and economy

Mohamed Abdel Aal
8 Min Read

Global waterways are essential for international trade and the global economy. They enable fast and cheap transportation of goods and commodities between countries. By using waterways, transportation costs can be significantly lower than other modes of transport, such as air or land. This leads to lower prices of goods and higher profits for transportation companies. It also reduces the costs of production inputs or consumer goods.

Waterways also connect countries and continents, facilitating the exchange of goods, cultures, and ideas. They support the local economy of the countries they pass through, creating job opportunities and stimulating economic activity. Moreover, safe and efficient waterways can enhance global security and stability, as they can help prevent or resolve tensions and conflicts between countries.

International waterways are the backbone of the global economy and play a key role in promoting global trade and providing major transportation routes for essential and consumer goods. Since many exports and imports depend on maritime shipping, the efficiency of waterways is crucial for the global economy.

Some of the most important waterways in the world that have a significant impact on global trade and maritime transport are:

·        The Suez Canal: It connects the Red Sea and the Mediterranean Sea and is a vital waterway for trade between Europe and Asia. About 12% of global trade passes through it.

·        The Panama Canal: It connects the Atlantic Ocean and the Pacific Ocean and is one of the most important waterways in the world for maritime trade.

·        The Strait of Gibraltar: It separates southern Spain from northern Morocco and is an important waterway for shipping between the Atlantic Ocean and the Mediterranean Sea.

·        The Strait of Hormuz: It connects the Arabian Gulf and the Persian Gulf and is a vital waterway for the transportation of oil and natural gas.

·        The Bosporus and Dardanelles Straits: They separate ancient Constantinople and Asia Minor, and are vital waterways for Istanbul and Turkey and trade between the Black Sea and the Aegean Sea.

·        The Strait of Magellan: It connects the Atlantic Ocean and the Pacific Ocean and is one of the most important waterways in Central America, allowing maritime shipments to flow between the two oceans.

·        The Strait of Malacca: It handles about 40% of global maritime traffic and is one of the most important waterways in Southeast Asia.

·        The Bab el-Mandeb Strait: It is located between the southern coast of the Red Sea and the northern coast of the Arabian Sea, making it a vital strategic location for international navigation and maritime security. It is a major waterway for maritime shipping to and from the Middle East, Asia, and Europe, and any disruption in this strait could have a major impact on global trade. It is used by cargo ships and oil tankers to transport goods and oil to and from the Middle East region, making it a vital part of the global maritime transport network. Given its strategic importance, the Bab el-Mandeb Strait is of international interest for maritime security, piracy prevention, and ensuring the safety of navigation.

The Economic Risks of Disruptions in Global Waterways

Global waterways, however, also face some risks that can disrupt shipping and affect the safety of navigation. These risks include:

  • Large ship accidents that can block waterways for long periods
  • Bad weather conditions that can delay ship movement and shipping
  • Security threats, piracy, and terrorist activities that can endanger ship movement
  • Political and geopolitical conflicts that can restrict or close waterways

The impact of these risks can be significant on the economies of the countries that own or use the waterways, as the disruption of shipping can lead to additional costs and delays in supply and export, affecting the economy.

The economic effects of waterway disruptions can be:

  • A global impact on trade: The disruption of navigation in a vital waterway can cause massive delays in global shipping, leading to disruptions in global supply chains and increased shipping costs, affecting international trade and causing an increase in commodity prices.
  • An impact on exports and imports: Countries that depend heavily on the waterway for exporting and importing goods can face difficulties in carrying out export and import operations, affecting their ability to generate revenue and meet domestic needs.
  • An impact on maritime transport and maritime activities: The disruption of the waterway can significantly affect the shipping and maritime transport industry, leading to significant economic losses for shipping companies and the maritime industry.
  • An impact on the tourism sector: If the waterway passes through tourist areas, the disruption of navigation can affect the tourism industry in those areas, leading to additional economic losses.

For the country owning the waterway, the disruption of the waterway can have a major impact on its economy, as these waterways are often a significant source of revenue and a major driver of the economy. The disruption of navigation can lead to a decrease in revenue from fees imposed on ship and cargo movement, in addition to maintenance costs and emergency repairs.

A real-life example of the economic risks of waterway disruptions is the current situation in the Red Sea, where attacks by Houthi rebels on ships have diverted some ships around the southern tip of Africa, “Cape of Good Hope”, instead of taking the shorter route through the Suez Canal, leading to increased shipping costs. Although this has not yet led to a significant increase in oil and natural gas prices, the possibility of this happening exists if the Israeli conflict with Hamas escalates or trade disruptions continue. The impact on Egypt, the country that owns the Suez Canal, is direct, as transit fees have decreased relatively due to the decrease in the number of ships that have diverted to the Cape of Good Hope instead of passing through the Suez Canal, to avoid the risks of crossing in the Red Sea.

Therefore, countries and international organizations need to work on providing support and investment in infrastructure, navigation technology, and maritime safety, to ensure the continuity of shipping in vital waterways and reduce the impact of any potential disruptions on the global economy.

Mohamed Abdel Aal: Banking expert

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