The Impact of Geopolitical Tensions in the Middle East on Red Sea Port Logistics and Supply Chains

Posted: December 26th, 2023

The Impact of Geopolitical Tensions in the Middle East on Red Sea Port Logistics and Supply Chains
1. Introduction
Geopolitical tensions in the Middle East, naval competition, and power projections have all contributed to the increasing militarization of the Red Sea. In recent years, this has taken the form of various forms of sea-denial. Naval blockades and mine-laying operations are designed to deny an adversary access to or control over an area of the sea, thereby countering more powerful military forces such as those possessed by Iraq or Iran. During both World Wars, control of the Red Sea and access to the oil routes from the Persian Gulf were strategic imperatives for the United Kingdom. Although former President Bush denied that the Gulf wars were fought over oil, control of oil routes and denial of their usage to enemy states was a key strategic concern. During a potential conflict in the Middle East, the US and its allies would likely attempt to enforce a naval blockade on Iraq to deny it access to the Red Sea and, more importantly, to the oil routes from the Gulf. If the next strategic concern is control of the Suez Canal and alternative oil pipelines, then any contemporary or future conflict may expand to include operations in the Eastern Mediterranean. These can take the form of power projections aimed at denying the use of the Suez canal to an adversary. Russia has expressed interest in regaining its superpower status and has been modernizing its navy, seeking to protect its own maritime interests and oil routes. Other possible scenarios involve mining of the Suez canal or attacks on the pipelines themselves.
1.1 Background
The current period of US military disengagement and reorientation of national priorities will have impacts on the Red Sea trade infrastructure and systems. The War on Terror and subsequent invasions of Afghanistan and Iraq have caused the US military to become heavily vested in the Arabian Peninsula and Persian Gulf and have induced a strategy of rapid deployment for the movement of troops and equipment to the region. The United States Marine Corps and Army have conducted numerous wargames and simulations to test sealift capabilities and the strategic prepositioning of equipment in the Joint Warfighting Center in Virginia. Post Operation Enduring Freedom and Iraqi Freedom, it is probable that the military will seek to preserve the knowledge of sealift and prepositioning gains achieved in these conflicts and apply them to similar situations in the future. In the long run, a US disengagement from the Middle East and a reversion to a CONUS-based strategy will result in a decreased military presence in the Arabian Peninsula and reduced US involvement in the protection of its sea lanes and strategic interests in the region. This will leave a power vacuum in the Red Sea and challenge the existing trade infrastructure and systems.
The Red Sea is an integral part of the global economy and trade networks. With its northern access to European and North American markets and its southern connection to Asian and African trade routes, the Red Sea is the world’s most strategic trade route. Roughly 7.5% of global trade, more than 5 million barrels of oil per day, and 20% of all oil trade passes through the Suez Canal. In the volatile political climate of the Middle East and North Africa, the threats posed to trade and shipping in any part of the world have rippling effects on the various systems maintained by global trade and national economies. A geopolitical event in the Red Sea has the potential to stop the movement of goods and significantly affect trade systems throughout the world. An example of such an event was the Arab-Israeli War in 1967. Less than a week after the beginning of the conflict, the Egyptian government closed the Strait of Tiran to all Israeli ships and all ships bound to or from Israel. This essentially blockaded the Israeli port of Eilat. This event had short-term repercussions and induced long-term changes in the trade infrastructure of the region.
1.2 Research Objectives
The main purpose of this research is to investigate the impact of the growing geopolitical tensions in the Middle East on the Red Sea and the logistic and supply chain operations of the ports in the region. Specifically, to understand what these geopolitical tensions are, the differing nature of the Red Sea countries’ allegiances and alliance, the future of the Red Sea, and finally investigating the scenarios of future conflict and how they may impact the various Red Sea ports. This research will be significant not only to a relatively small body of existing work on the Middle East’s systemic impact on global trade and transport, but also to the more recent speculations, within the academic community, that much of our world is entering a new phase of history based on a clash of civilizations. This new phase of history has been used to explain a time when East-West alliances are clearly defined and are often contested in regions other than the superpower homelands. Thus the research seeks to elucidate whether or not, the changing nature of the Middle East’s economic and security alliances and its civilizational mindset will impact any global system, which relies heavily on the use of goods, for the transportation and commerce of said goods to the world market.
The research seeks to provide a deeper understanding of the complexity of the region’s situation and avoid creating a generalized or oversimplified view of the problem. The topic is a widely discussed issue within the field of International Relations and Security Studies. However, much of the existing works fails to explain the different alliances and attitudes, give an objective view of the situation due to national bias, and provides mainly econometric or game theory models to the future of the region without investigating potential real-world scenarios. This work will imply historical methods and geopolitics to a qualitative study of the current situation and attempt to provide a clear view of the future of the region and potential impact on global trade and transport.
1.3 Significance of the Study
This study is significant as its outcomes are beneficial to international trade, transportation, and port operations, as well as to students and particular industries. The cost of war is very costly and time-consuming with a lot of negative implications, and this case studies a war by proxy and economic trade blockade on two different but similar cases of a war in the Gulf region and the Iran/Iraq war. This study will also produce proactive steps to counter future external environments and the possibility that more case studies of this nature will happen, and no industry wants to be caught off guard. Steps taken by the port operators and the supply chain parties are essential, and the right decisions and definite steps will avoid or reduce costly mistakes and ensure operations continuity. Last but not least, the students will definitely benefit from this research as it requires understanding from various aspects. This will be an eye-opening experience for students or people who are not in the industry to understand the real situation and decision-making process, which is a good case study on the role of a manager.
The main objective of the study is to collect evidence and analyze the impact of geopolitical tensions on the Middle East on the logistic operation of Red Sea ports and supply chains. The study attempts to investigate the security and insurance environment of the country, which is considered to be one of the important points that will affect the port operation. Then, it will try to analyze the recent development on the shipping line in terms of alliance, cooperation between the two shipping lines, and the effect on the port of call selection by the shipping line. The second part of the study will identify the strengths and weaknesses of two main Middle East ports: Port of Jeddah and Islamic Republic of Iran Shipping Lines (IRISL) and Port of Bandar Abbas, and try to find out the reasons for certain actions taken by the port and the corresponding effect. Last but not least, it will also study the reactions taken by the port terminal operators and the precautionary steps taken by the supply chain party to ensure cargo safety and no pricey additional costs are incurred. It is very important to understand the decisions made by every party on research essay pro paper writing service involved in this logistics movement, as their actions are very forward-looking and no party wants to make costly mistakes and regret at the end.
2. Geopolitical Tensions in the Middle East
The Middle Eastern region is one of the most volatile regions in the world due to the myriad of conflicts and wars, which are mostly due to the fact that a majority of the world’s oil reserves lie in many of these countries. Also, the ongoing Arab-Israeli conflict has added more instability to the area. All these factors have a direct impact on the flow of goods around the world due to the geographical position of the Middle East. With a large majority of the world’s oil passing through the Persian Gulf, many countries have expressed great concern about the security of this oil due to the amount of conflicts. The recent involvement of the USA in military conflicts in Afghanistan and Iraq has added substantial friction with many countries in the Middle East. This will have a profound effect on the future US relations with other countries in the Middle East and also the rest of the world.
2.1 Overview of the Middle East
The geopolitical environment in the Middle East region is of significant importance and impact. Most of the beliefs people hold on the region are of conflict, war, and hostility. This belief is not wrong. The region is one of the most turbulent regions on earth. In the past 60 years, over 40% of all major armed conflicts have taken place. The region is also home to two of the world’s most intractable conflicts, the Arab-Israeli conflict and the India-Pakistan conflict. The region is also subject to high levels of militarization. The region of the Middle East is hard to define as it has no clear boundaries. For the purpose of this dissertation, the Middle East is defined as the region stretching from Afghanistan in the East to Morocco in the West. This includes the Eastern Mediterranean and North Africa. The Middle East can be further divided into three sub-regions. These are the Arab World, Iran, and Israel. Around 5% of the world’s population lives in the Middle East, but it contains over 30% of the world’s refugees. The Middle East is also a region that is abundant in natural resources. The region contains approximately 65% of the world’s known oil reserves and around 35% of the world’s known natural gas reserves. This high level of resource endowment has made the region strategically important to Global and Great Powers. This has been the case throughout history and has contributed to the region’s political and military turbulence.
2.2 Causes of Geopolitical Tensions
In the Middle East, water resources are often as important as mineral resources. The control of land around water sources and attempts to maintain particular water quotas has caused tension between riparian states, particularly those who share a coastline. Control of water is seen as a matter of survival, and thus water resources have caused both direct and indirect conflict, and the continued attempts to solve water disputes have further complicated inter-state relations. This stems from the view that control of a watercourse and its resources can be both a weapon in coercive diplomacy and a means to a negotiating end. Any attempts to divert the course of a watercourse or act unilaterally in water issues can have legal, political, and security implications (El-Ashry et al, 2001).
Globalisation is often blamed for fueling the territorial ambitions of the region’s states, as they jostle for position in an era where the main routes of the world economy between Europe and Asia run close to or through the Middle East. Energy resources and their transportation are vital to the global economy and of extreme strategic importance. The Middle East holds over 60% of the world’s oil reserves and the Gulf has over 40% of the world’s proven oil reserves. Over the latter half of the 20th century, control of these resources has caused conflict between Middle Eastern states, between those states and outside powers, and has also played a large role in underpinning inter-Arab relations. Disputes over oil and attempts to ensure access to oil have been a source of conflict between Israel and her Arab neighbors, and have been a factor in repeated US military interventions in the Persian Gulf (Noreng, 2002).
2.3 Key Players and Conflicts
Key players and conflict includes several significant conflicts that hold substantial impact on the region. The most notable of these is the Arab-Israeli conflict. Beginning in 1947, this conflict has involved several wars with Israel fighting against a number of neighboring Arab nations. It has also included a long-running battle with the Palestinians to gain a sovereign state in the West Bank and Gaza Strip, with the Palestinians accusing Israel of heavy-handed tactics and land theft through the building of settlements. As of 2017, Israel is involved in an ongoing military intervention in the Syrian Civil War to prevent Iranian-supported Hezbollah forces or ISIS militants from gaining a foothold on the Golan Heights, which they see as a direct threat to national security. As recently as July 24th, 2017, the conflict was reignited when a Palestinian sought revenge for tensions at the Al Aqsa mosque by bursting into a family home and murdering 3 Israeli settlers. An Israeli man and woman were murdered in the West Bank on September 22nd, 2017. It is still clear that this ongoing conflict still provides potential to escalate into a wider war involving multiple nations.
The Iran-Iraq war of 1980-88 was a conflict between the Islamic Republic of Iran led by the revolutionary leader Ayatollah Khomeini and the Ba’athist Republic of Iraq under President Saddam Hussein. This war has had a significant detrimental impact for trade in the Gulf and was sparked by a number of border disputes and Shatt al-Arab waterway, which caused one of the longest sustained conflicts of the 20th century. There is a clear parallel between this sweet study bay essay on conflict and current tensions in the Gulf, with trade disruptions mentioned earlier in this paper holding substantial impact on GCC trade and a potential worsening of the conflicts in Yemen and Qatar having potential to completely halt trade in the region.
3. Red Sea Port Logistics
In both locations and with an array of different military interests, the level of risk to merchant shipping and supply chain operations varies. In both instances, the likelihood of deterrence versus interdiction will simply allocate higher insurance costs to operators and shippers contemplating whether to use the area as a thoroughfare or conduit for goods shipped. An example of this would be the recent American action to secure Iraqi oil terminals. This has led to various assertions made by the USA that oil is being protected for the Iraqi people, although commentators and nearby states believe that protection and/or appropriation of Iraq’s oil resources is an underlying motive. The result is that potential operators, including oil companies, will stand back and wait to see what transpires in terms of a definitive peace and nationalization of Iraq’s governance before investing in oil purchasing or facilities rehabilitating said facilities, a definite opportunity loss for operations in global oil supply chains. In the case of global trade for Iraqi oil, it is simply an unsafe bet to assume that transport down the gulf and through the straits of Hormuz will provide a risk-free and low-cost option for the foreseeable future. The end result being higher costs for sea to sea river or land transport to more stable regions and/or a decision to abandon contracts and legacies pertaining to previous trade routes.
There are many factors implicated in the metamorphosis of contemporary supply chains, both local and global. Contemporary logistics providers will recognize the importance of geopolitical stability on efficient trading regimes and the optimization of supply chain operations. The Middle East is currently an area of great military occupation and diplomatic tension, and this is of profound implication to local and global supply chain activities. This is especially the case in relation to the countries of the eastern Mediterranean and the Suez Canal. This dissertation aims to highlight how geopolitical tension in a specific region can impact upon local and global supply chain activities using the example of current tensions in the bases of the eastern Mediterranean and the Suez Canal with specific referral to the war in Iraq and ongoing hostilities between Israelis and Palestinians.
3.1 Importance of Red Sea Ports
Commercial shipping has long utilized the shipping routes and potential that the Red Sea offers. It is the vital link as a waterway between the East and the West, connecting the Mediterranean with the Arabian Sea/Persian Gulf. The Suez Canal is a major passage for trade vessels traveling between Europe and Asia. Seaborne oil trade and minerals from the Persian Gulf and beyond bound for Europe and the U.S. East Coast also use the route. The relevance of the Red Sea to world trade can be seen with the near 18,000 vessels that use the waterway on an annual basis. It is also a passage to the future; with high traffic routing there are plans to widen the canal to avoid risk of collision damage and possibly building a new Red Sea Canal to support a greater trade throughput in years to come. It is apparent with a shipping route in such high demand that quality ports to support them are crucial and the Red Sea has such value in its geographic location as an intermediary between the East and the West that it serves the interests of many nations. They cater to various vessels, dry and liquid cargoes, containers etc. and are the nucleus of Red Sea commercial activity. The primary ports that are most utilized by commercial shipping are Port Sudan, Jeddah and Aqaba.
3.2 Infrastructure and Operations
The infrastructure and operations of the Red Sea port logistics system are a relatively new and developing area of study and research activity in the field of transport geography and in transport and logistics more generally. The Red Sea’s strategic importance lies in its economic value and its control and domination has been the desire of many maritime or contiguous states. As a result, great efforts have been made to develop the ports and related infrastructure throughout the 20th century but have been especially significant in the last 20 years. The liberalization, privatization, and globalization of the world economy during the 20th century has substantially restructured how we produce, market, and distribute goods and services and has had a profound effect on the demand for transport and logistics services. This has translated to changes in production locations, sourcing, and distribution patterns for a variety of goods and industries influencing the increasing significance of the Middle East and particularly the Red Sea as a viable and more cost-effective transit zone between the world’s largest consumer market (Europe) and its primary production location (Asia). These global changes have driven demand and transshipment volume through the region and hence increased demand for more reliable and efficient transport and logistics services. This, in turn, has driven developments in infrastructure and operations of maritime transport and supply chain logistics in the region.
3.3 Challenges and Opportunities
The previous paragraph analyzed the various historical and geographical reasons for instability in the Middle East, and their implications upon the global oil industry. In this section, we will assess the stability and security of individual Red Sea littoral states. Our aim is to ascertain how their own political situations may affect the joint vulnerability of the Western economies to any prolonged disruption of Gulf oil exports. Of the various potential flashpoints in the Middle East that were reviewed in the previous section, the Republic of Yemen is, with the possible exception of Sudan, the state that is most dependent upon the export of its oil and therefore most likely to be affected by the projected rise in oil revenues for the next two decades. With an estimated 3.3 billion barrels of proven reserves, Yemen is predicted to more than double its oil production over the next ten years and has the potential to grow this figure further in the long term. But despite its location on the Arabian Peninsula, with most of its oil being located in the central and eastern parts of the country, an increase in revenue from oil has the potential to create more instability for Yemen and for its neighbors in Saudi Arabia. This is due to the fact that Yemen is an impoverished state with a tribal society and a history of internal conflict. An increase in revenue will give the government more to contest over, which has the potential to cause increased internal conflict and the creation of still more alliances of convenience between tribal leaders and/or with foreign backers. Moreover, Yemen’s strategic position near to some of Saudi Arabia’s onshore and offshore oil fields makes it a potential target for Saudi military action, should the Saudi government perceive the Yemenis to be a real threat to their own oil revenues.
3.4 Impact of Geopolitical Tensions
The political geography of a region casts its shadow on various aspects of the economy in the area. There has been a significant growth in studies examining the relevance of economic geography in connection with economic globalization and the resultant acceleration in the transfer of goods, services and capital between countries on a global plane. Geopolitics asserts that the state is the primary actor in international relations and is concerned with achieving its own security and prosperity through gaining power over other states. Applying this to a particular region, a state with a high level of security and control over the resources available to it will seek to integrate its resources into the global economy. Conversely, a state which has little control over resources and a low level of security will find it more difficult to integrate its resources into the global economy. In both situations, the aim of the state is to improve the welfare of its people through increasing wealth and resources. This is most easily achieved through the exchange of resources with other states, and thus economic globalization becomes a key policy issue for most states. The general growth in economic globalization on a global scale has led to increased competition between states to try and integrate their resources into global markets. This has produced a shift in focus towards the economic strategies of other states and the impact such strategies might have on a state’s own economic development. It is the impact of one state’s economic strategy on the economic development of another state which represents the theme of contemporary global economic relations and is most relevant to the association of economic geography and economic globalization.
4. Supply Chains and Trade Routes
It is no secret that the world’s economy is becoming more and more global in nature, and this holds true for the automotive industry, which has suppliers and production aimed at many different world markets. The Red Sea nations are no exception, with Saudi Arabia having the third largest number of car imports in the world. Cheap oil prices and strong export/import regulations mean that the Middle East auto markets are likely to experience further globalization. So, Saudi Arabia seeks to improve its import/export efficiency through its main ports of Jeddah and Dammam. Measuring efficiency can be difficult in the automotive industry, but a break bulk analysis at Jeddah Islamic Port showed that port efficiency of automobiles is highly correlated with value gained (Laemont and Schultz, 2003). This being the case, it is important to understand the automobile value chain, which is an integrated network of many different suppliers of parts and materials that assemble finished automobiles and the market for said automobiles.
Port-centered logistics has always played a critical role in the nations of the Gulf, and it has only grown in importance over the last decade with the prevalence of multinationals and the increased importance of global supply chains. The principal aim of global logistics is to create net value, build a competitive advantage, and increase efficiency by way of leveraging logistical services. This is particularly true for the nations of the Red Sea, who aim to create a competitive advantage through their ports. However, due to the high level of geopolitical risk in this region, port-centered logistics is easier said than done. In order to improve the competitive advantage and net value, it is important to have a thorough understanding of the global market.
4.1 Global Trade and Supply Chain Networks
Through the expansion of globalization and interconnectedness, ‘The Age of Global Supply Chains’ has emerged as a new paradigm for understanding the evolution of global trade and international transportation networks. The complex global web that links production, distribution, and consumption into a seamless system has allowed for companies to source the cheapest inputs and produce and distribute an end product on a global scale. Horizontal and vertical disintegration of the production process has fueled the rapid growth in value chain trade, exceeding the growth in the trade of final goods and services. As a result, it’s now quite common for the parts of a product to be produced in a number of different countries before finally being assembled in a different country and exported to a consumer in yet another country. This has marginalized the old import for re-export industries, with import and domestic use now accounting for approximately two-thirds of international trade.
With the steep decline of trade barriers, transportation and communication costs over the past 40 years, the environment for international trade has been drastically altered. Countries such as Egypt or Saudi Arabia who largely stayed out of global markets are now propelled into the international trade system. During this era, no part of the world has experienced a more radical change than developing East Asia. Rapid economic growth and industrialization have transformed the region into the ‘world’s factory’ and have provided the Middle East with an opportunity to exploit its proximity to this region and abundance of natural resources into becoming an integral part of Asia’s vast and still growing value chain. This new era has seen a dramatic shift in the form of transport used in global trade and has been of particular importance to the countries of the Middle East. High-value, time-sensitive manufactured goods now make up the majority of international trade and as a result, there has been a shift from sea transport to air transport as the primary mode of transit. This has left many of the world’s shipping lines with excess container ship capacity and has forced the industry to undercut prices and provide cheaper and more diverse sea transport options in order to compete with air and maintain value chain trade.
4.2 Red Sea as a Strategic Trade Route
The Red Sea has historically been a valuable trade route due to its location between the Middle East and the Mediterranean, West Africa and South Asia. Over 20,000 ships pass through the Bab el-Mandab chokepoint at the southern end of the Red Sea each year. Access to the Red Sea and Suez Canal significantly reduces travel distance for European and North American trading partners with East and Southeast Asia. Around 2.5% of global oil trade and 10% of global seaborne oil passes through the Red Sea and Suez Canal. The canal provides the quickest access for European countries to Persian Gulf oil.
The strategic nature of the Red Sea as a trade route is evident in recent military operations by Western countries. Related to the instability caused by tensions in the Middle East, these events have significant implications for the security of supply chains passing through the area. In late 2001, immediately following the September 11 terrorist attacks on the USA, German and Dutch forces participated in the Enduring Freedom campaign by entering the Red Sea to relieve US ships so they could be reassigned to military operations. In early 2002, these ships provided escorts through the Straits. This initial German involvement in the War on Terror marked a significant policy change to pursue an active military role outside of the European theatre. This represented a major commitment to the security of Persian Gulf oil. In mid-2002, the European Union showed interest in a military operation in the area. These events indicate an increased European focus on the security of oil supplies, particularly those passing through the Red Sea.
4.3 Disruptions and Risks to Supply Chains
The term “supply chain” is defined as “a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these products to customers.” This conceptualization of supply chains represents a discrete system wherein inputs and outputs are transferred to various facilities in order to create an output. The management of transportation between these facilities in order to minimize both time and cost involved in transfer is an implicit goal to the concept of supply chains. Based on this brief conceptualization of what defines a supply chain, the global notion of supply chains can be represented in terms of trade throughout the world. Global trade is a simple concept that involves the exchange of goods between countries in hopes to increase the goods value. In order to realize this happening, one must identify the goods that are to be traded, followed by the creation of the goods and their subsequent transfer to another country. This process can be represented as the inputs and outputs to some transformation process, with the transformation process being creation of the good and the transfer of the good being the transportation between facilities. Here it’s easy to see the relation to the supply chain conceptualization, and hence through the model of supply chains given, it can be said that global trade is in fact movement of goods between countries with the intent of creating the highest possible value for that good.
4.4 Mitigation Strategies and Future Outlook
The surest way to limit the economic fallout from disruptions is to prevent them happening in the first place. However, total prevention may not be feasible given the scale and multitude of potential threats and the geographic scope of supply chains. Therefore, it is important to develop contingency plans for chronic, high-impact events in the Red Sea region. To implement any of the following recommendations, an understanding of the probabilities and projected impacts of various scenarios on specific supply chains is needed. Unfortunately, there is limited information available about the projected impacts of regional tensions on particular supply chains. An industry-wide study assessing the vulnerabilities of specific Red Sea reliant supply chains would be very useful. This type of information will allow cost/benefit analyses to be conducted on specific risk mitigation strategies. Specific research is also needed to gauge how much resilience the increasing trend of lean and ‘just-in-time’ supply chain management has sacrificed in comparison to the cost savings in inventory and warehousing. This will enable supply chains to weigh the costs and benefits of adopting a more flexible supply chain strategy in order to build in resilience and buffer stock against potential future crises.