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Global Trade Braces for Unprecedented Geopolitical Challenges in 2024 

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Global Trade Braces for Unprecedented Geopolitical Challenges in 2024 

Container xChange, a leading online container trading and leasing platform, releases its New Year’s Edition Container Market Forecaster, shedding light on the escalating geopolitical risks set to reshape the landscape of global trade in 2024.

In response to these geopolitical risks, majority of shipping professionals surveyed in the month of December 2023, by Container xChange, are gearing up to enhance resilience through strategic initiatives like – ‘risk assessment and scenario planning’, ‘diversification of routes’ and ‘suppliers and regulatory compliance’. The biggest ‘headache’ resulting from geopolitical upheaval is the ‘associated costs’ that they will have to bear on top of the rising operating costs that they have to already face. 

Key Highlights:

  1. Strategic Focus Areas: In response to geopolitical risks, shipping professionals are prioritizing ‘risk assessment and scenario planning,’ ‘diversification of routes and suppliers,’ and ‘regulatory compliance’ in 2024.
  2. Rising Concerns: Survey findings reveal that the biggest concern stemming from geopolitical upheaval is the ‘associated costs,’ compounding the challenges posed by soaring operating costs. Many customers are worried about the rising costs resulting from the Red Sea situation like compliance charges, insurance premiums and war risk charges, etc. The operating costs have already been rising soon after the rates crashed in 2022, and demand failed to recover. On top of the rising costs, these additional surcharges will only add to the worries of shippers and forwarders.
  3. BRICS Expansion: The inclusion of new economies in the BRICS bloc, including Saudi, Iran, UAE, Egypt, and Ethiopia, sets the stage for potential polarization of global trade, impacting geopolitical compliance.
  4. Technology Utilization: Despite challenges, 82% of industry professionals acknowledge the importance of technology for resilience in 2024, with predictive analysis and forecasting tools taking center stage.
  5. Sanctions Compliance: Amidst geopolitical developments, sanctions compliance becomes critical for supply chain professionals, adding another layer of complexity to global trade.
  6. Fluctuating Freight Rates: freight rates will increase in the short to midterm, but not in the long run as demand and supply is still highly imbalanced with no clear signs of a strong revival. 

Talking about the Red Sea situation, Christian Roeloffs said, “The Red Sea is a vital artery for global trade which is currently blocked. Thankfully, there are ways to circumvent that artery and keep the global trade moving and therefore, the trade is not stopped. Therefore, the red sea situation is acute but not chronic in the long term for the shipping industry.

There are still many geopolitical risks that have the potential to significantly impact shipping trade in 2024. We have the Israel – Hamas war, the related situation in the Red Sea, the Russia Ukraine war with no end in sight, tensions between China and Taiwan and an increasing enlargement of the BRICS block. 

BRICS expansion

“What can have a far- reaching and long-term impact on the global supply chain is the BRICS inclusions of more economies.” Roeloffs added. 

There is a host of countries being added in the BRICS block, namely, Saudi, Iran, UAE, Egypt, Ethiopia, while Argentina declined inclusion. BRICS has been viewed as a counterbalance to the Western-led world order. 

“If the block starts to increasingly align political decisions and geopolitical stances, then there could be added complexities to the global trade order with rising polarization of global trade. Ultimately this might lead to a situation where one block is not allowed to trade with the other block and eventually, geopolitical compliance becomes more complex and difficult.” he added. 

The expansion of BRICS will bring further interesting developments worth noting. Iran and Saudi are now in the same organization despite a strained relationship. Egypt has close commercial ties with Russia and India but also with the US. India and China together account for ~2.5bn people and could heavily influence global policymaking if they are more aligned.  And finally, Russia and Iran being able to jointly influence “trade” policymaking within the BRICS group could lead to a “sharpening” of trade rethink of US-allies vs BRICS.

Amidst these developments, sanctions compliance will become critical for supply chain professionals for doing business. 

Any geopolitical unrest has a direct and causal impact on global trade which results in market volatility. Classic case in point is the Gaza Strip and the resulting actions by Houthis in Jemen. This leads to trade rerouting, ultimately resulting in rising operating costs, delays, and service disruptions.” said Roeloffs.

diesel crude production

The Middle-East Conflict is Driving US Oil Production to Record Highs

In the face of a long and drawn-out conflict in the Middle East and Ukraine, US oil production has reached record highs. As of early October, total Stateside petroleum production registered 13.2 million barrels a day. Based on data from the Energy Information Administration this is the highest figure since 1983.

 Active US drilling rigs number 501 nationwide and output for 2024 is expected to drop just slightly to 13.12 million barrels a day. Active rigs are down significantly (610 in 2022), however, making output even more impressive considering the erratic US regulatory environment. The current administration is only planning for three oil and gas leases over the coming five years – if this holds it will be the fewest leases offered ever.

 Yet, despite record output the world at large is still highly dependent on Saudi Arabia and a handful of other OPEC nation producers. For example, should Iran be drawn into the Israel-Hamas war the country’s 3 million barrels a day would be at risk. A massive explosion at a Gaza City Hospital alone sent prices skyrocketing northward.

 Before the Israel-Hamas war, the Saudis were negotiating with Israel to increase their oil production to lower prices globally. Most analysts believe the Saudis would prefer oil in the $80 to $100 per barrel range and will continue pursuing this strategy. One-third of seaborne oil passes through the Strait of Hormuz and greater entanglement with neighboring countries would likely affect vital traffic flows.

The Exxon Mobil purchase of Pioneer Natural Resources in early October was a boost to US domestic energy production. While the merger will naturally result in increased production, the two companies would still only represent 13% of Permian Basin production. The Permian is a shale basin and features high production decline rates. This means that maintaining the status quo production rate takes significant effort and resources.     

 In late September oil prices reached $93.68 a barrel on the New York Mercantile Exchange. Meanwhile, the Brent crude BRNOO hit $96.55 a barrel, the highest since November. The Exxon move clearly communicates that the demand for fossil fuels is not abating. However, it is still unclear how Russia and Saudi Arabia would react to a potential market share grab by Exxon and Pioneer.     



US Imposes Sanctions to Disrupt Hamas’ Funding Sources Following Deadly Attack in Israel

In response to the deadly attack carried out by Hamas in Israel, the United States has taken a decisive step by issuing sanctions aimed at disrupting the group’s sources of funding. These measures were announced during President Joe Biden’s visit to Israel, reaffirming the United States’ support for its ally. The sanctions primarily target individuals involved in Hamas’ investment portfolio and a Gaza-based cryptocurrency exchange, along with other entities.

The US Treasury Department, in a statement, outlined that these sanctions focused on nine individuals and one entity spread across Gaza, Sudan, Turkey, Algeria, and Qatar. These actions came in the wake of Hamas’ destructive attack on October 7, which claimed the lives of 1,400 people in Israel. In retaliation, Gaza health authorities report that more than 3,000 Palestinians have lost their lives in bombings.

Treasury Secretary Janet Yellen emphasized the urgency of these measures, stating, “The United States is taking swift and decisive action to target Hamas’s financiers and facilitators following its brutal and unconscionable massacre of Israeli civilians, including children. We will continue to take all steps necessary to deny Hamas terrorists the ability to raise and use funds to carry out atrocities and terrorize the people of Israel.”

These sanctions specifically address six individuals associated with Hamas’ covert investment portfolio, building upon earlier sanctions imposed in 2022 on officials and companies linked to this international portfolio. Notably, one of the key targets is a Gaza-based cryptocurrency business known as “Buy Cash Money and Money Transfer Company.” This firm provides services related to money transfer and virtual currency exchange, including the use of the cryptocurrency Bitcoin. According to the Treasury, this company has also been utilized by other terrorist groups for fund transfers.

Blockchain research firm Elliptic revealed that crypto wallets controlled by “Buy Cash Money and Money Transfer Company” have received more than $25 million in cryptocurrencies since 2015.

In response to these sanctions, Buy Cash stated that it is a “licensed international company” without specifying which authority granted its license. The company also disputed the claim of receiving $25 million in its wallet, attributing the discrepancy to fluctuations in Bitcoin’s value.

It’s worth noting that one of Buy Cash’s crypto wallets was among several seized by Israel’s National Bureau for Counter-Terrorist Financing in June 2021, as indicated in the Treasury’s statement.

Additionally, a group of 105 US lawmakers sent a letter to the US Treasury Department and the White House expressing their “grave concern” about Hamas and its affiliated group, Palestinian Islamic Jihad, using digital assets to fund their operations and evade US sanctions.


Israel-Palestine Conflict Set to Create Challenges in Maritime Industry while Trade Continues with Caution

The Israel-Palestine conflict, marked by recent violence between Israel and Hamas, has sent ripples through the shipping and maritime industry, leading international companies to issue cautionary advisories and adapt their operations in the region.

“In light of recent developments in the Middle East, including the outbreak of war in Israel and its vulnerability to missile attacks and the incursion of opposing militias, the security of transporting goods through the port of Haifa has become uncertain. The transit of containers, especially hazardous materials, and the arrival of commercial vessels greatly emphasize the importance of security on this route. Such insecurity or potential terrorist attacks could lead to a shift in the transportation of goods,” said Hossein Norouz Fashkhami, a senior marketing expert from Middle East.

Shipping industry’s resilience amidst Israel-Palestine conflicts

Maersk, a major player in the industry, reassured stakeholders by announcing that its port operations across Israel’s key terminals are functioning without disruption. MSC echoed this sentiment, asserting that Israel’s major terminals are operational, enabling them to facilitate cargo delivery.

However, the maritime industry is aware of the security situation, and companies such as MSC remain vigilant, pledging to monitor the situation closely and heed government guidance. This underscores the industry’s adaptability and resilience in the face of geopolitical tensions.

The specific impact on individual ports tells a compelling story:

  • Port of Ashdod: This port, situated a mere 50 kilometers from the Gaza border, operates in an ’emergency mode’ only, subject to potential missile attacks. Furthermore, restrictions on vessels carrying Hazardous Materials (“HAZMAT”) remain in effect.
  • Port of Haifa: In contrast, the port of Haifa, encompassing the Haifa Bay port and Israel shipyard, continues with business as usual, undeterred by the conflict.
  • Port of Ashkelon: Located just 15 kilometers from the Gaza border, the Port of Ashkelon is severely impacted, rendering it incapable of normal operations due to missile threats. Vessels can only discharge cargo while moored at sea buoys, highlighting the risk and necessity for adaptive measures.
  • Port of Hadera: The port of Hadera, in comparison, carries on without disruption, maintaining its regular functions.
  • Port of Eilat: The port of Eilat similarly remains operational, showcasing the industry’s commitment to ensuring the flow of maritime trade.

Beyond the ports, several global companies with a presence in Israel have been forced to adjust their operations. Chevron, the second-largest U.S. oil and gas producer, was directed by Israel’s energy ministry to shut down the Tamar natural gas field off the country’s northern coast. Adani Ports, operator of the Haifa Port, assured stakeholders of operational readiness while closely monitoring the situation and having a business continuity plan in place.

The Israel-Palestine conflict serves as a testament to the shipping and maritime industry’s ability to adapt, demonstrating that despite challenges and disruptions, trade and operations can persist, albeit with the necessary caution and vigilance.

Global trade relationships hang in the balance, with disruptions, diplomacy, and dollars at stake

Israel’s trade with China is characterized by a notable trade imbalance, with China being a major importer of Israeli goods. While Israel’s exports to China are substantial at $4.68 billion, the conflict may disrupt trade flows, particularly concerning Israel’s high-tech exports. The disruption could affect Israel’s exports and potentially hinder access to China’s vast market.

The United States is a critical trade partner for Israel, with a strong focus on exports. Israel exports goods worth $18.67 billion to the U.S., including high-tech products and defense-related items. The conflict may strain diplomatic relations between the two countries, potentially impacting Israeli exports to the U.S.

Germany is a key European trade partner for Israel. The conflict might impact Israel’s exports to Germany, valued at $1.88 billion. As Israel navigates regional instability, German imports from Israel could be affected.

India is another crucial trading partner for Israel, with $3.94 billion in Israeli exports. The conflict could have an impact on bilateral trade, potentially leading to disruptions in Israel’s exports to India.

Uncertainties surrounding ambitious trade initiatives

“The Israel-Palestinian conflict serves as a reminder of the uncertainties facing ambitious trade projects like the India-Middle East-Europe Economic Corridor (IMEC), positioned as a Western counterpart to China’s Belt and Road” said Christian Roeloffs, cofounder and CEO, Container xChange. 

IMEC, involving railways, ports, and green energy, aligns with the G7’s plans to mobilize $600 billion by 2027 for global infrastructure investments. India’s trade with Saudi Arabia has doubled in two years, reaching $53 billion in 2023, but the corridor’s true potential lies in strengthening Indian-European trade ties.

To fully realize IMEC, a reliable link between Saudi Arabia and Israel is essential. However, the ongoing regional complexities make it riskier for Saudi Crown Prince Mohammed bin Salman to normalize diplomatic relations with Israeli Prime Minister Benjamin Netanyahu.

In the near term, the Suez Canal remains the primary route for goods from India to Europe. This conflict underscores the enduring complexities of reshaping global trade and financial routes, highlighting the unpredictable nature of such endeavors.

Geopolitical conflicts and global health crises, unfortunate as they are, often lead to unintended consequences, boosting profits in specific sectors. Wars tend to inflate returns for defense contractors, while the pandemic brought substantial gains for select pharmaceutical companies. The maritime industry is not immune to these dynamics, with shipowners reaping unexpected benefits from both types of crises.

Christian Roeloffs added – “In the case of the conflict in Israel, any expansion of the hostilities beyond the country’s borders could introduce risks to two vital shipping choke points. The Suez Canal, a critical waterway for various commercial vessels, including container ships, may face disruptions. Similarly, the Strait of Hormuz, a backbone for oil and gas shipping, could be affected. However, the extent of these effects will largely depend on the conflict’s expansion and duration.”

It’s worth noting that Israel itself represents a relatively small market for container shipping, with its primary ports of Ashdod and Haifa accounting for just 0.4% of global throughput. Consequently, the threat of disruptions to container trade flow through the Mediterranean region remains limited.

Additional Information

India-Israel exports, costs, and risk management amid conflict

Key Indian exports to Israel include diesel, cut and unpolished diamonds, electronics, and telecom components like integrated circuits and photovoltaic cells. Conversely, India’s imports from Israel consist mainly of rough diamonds, fertilizers, and herbicides. This evolving trade relationship extends beyond traditional sectors, encompassing electronic machinery, high-tech products, communication systems, and medical equipment.

Higher costs for Indian exporters: The Israel-Hamas conflict has raised concerns about increased costs for Indian exporters, such as higher insurance premiums and elevated shipping expenses. These expenses stem from the heightened risk associated with shipping goods to regions experiencing geopolitical unrest.

Limited impact on trade volumes but financial strain on exporters: While the conflict may result in higher expenses for Indian exporters, the impact on trade volumes is expected to be limited unless the war escalates significantly. The primary concern is the financial burden on exporters, which may reduce their profit margins.

Risk Premiums from ECGC to Safeguard Indian Businesses: To protect Indian businesses from potential losses due to geopolitical uncertainties, India’s Export Credit Guarantee Corporation (ECGC) may introduce higher risk premiums for firms exporting to Israel. This is a standard risk management practice in regions facing increased instability.

While the Israel-Hamas conflict has the potential to increase shipping costs and insurance premiums for Indian exporters, it is essential to emphasize that the impact on trade volumes remains relatively limited at this stage. The bilateral trade relationship between India and Israel has diversified in recent years, encompassing various sectors beyond diamonds and petroleum products.