Mid-East conflict escalation, two indicators | Planet Money

Intro

In this episode of Planet Money, titled “Mid-East conflict escalation, two indicators,” the hosts discuss the escalating tensions in the Middle East and their economic ripple effects, particularly on the region’s biggest export, oil. They explore the impact of the conflict on global shipping routes and the potential consequences for the global economy.

Main Takeaways

Tensions in the Middle East and Economic Ripple Effects

• Tensions in the Middle East are escalating, with involvement from various regional and international actors, including militant groups and rebels from Yemen.
• The conflict in the Middle East is having economic ripple effects, particularly on the region’s biggest export, oil.
• Economist Rachel Ziemba is concerned about the conflict’s impact on the global economy, particularly the price of fossil fuels.
• Escalation of conflict in the Middle East could strangle oil and gas output, affecting the global economy, food prices, and food security.

Impact on Shipping Routes and Global Trade

• The Red Sea and the Suez Canal are crucial pieces of the global supply chain, with 10 to 15 percent of the world’s shipping passing through this area.
• The Houthi rebel group has been making attacks in the Bab el-Mandeb Strait, which borders Yemen and has been a site of conflict.
• The seizure of a ship with 25 crew members signals a new and dangerous situation in the Red Sea region.
• Houthi attacks on commercial ships have led to a significant increase in war risk insurance for the Red Sea, potentially adding millions of dollars in extra insurance costs.
• Shipping companies are charging extra fees and rerouting vessels to avoid the Red Sea, leading to additional costs and delays.
• Delays and rerouting may result in higher labor costs, additional fuel expenses, and potential penalties for late deliveries, which could impact global shipping and consumer goods prices.

Potential Economic Consequences and Historical Context

• Historical events, such as the closure of the Suez Canal in 1967, demonstrate how conflicts can disrupt shipping and impact global trade.
• The US military is involved in the Red Sea due to Houthi attacks, impacting global trade.
• The violence in the region and low water levels in the Panama Canal are stressing global shipping, with 80% of container ships avoiding the Red Sea.
• Russia’s oil and natural gas are increasingly being transported by ships, making them more vulnerable to disruptions.
• Concerns about potential disruptions in shipping in the Red Sea leading to similar scenarios in the Persian Gulf.
• Iran’s potential involvement in the conflict and its impact on oil production and prices.
• Potential consequences of a hot war between Iran and Israel on global oil prices and economic growth.
• Historical context of the 1973 Arab oil embargo and its impact on the US economy.
• Current factors affecting oil prices, including global economic slowdown and increased oil output from the US and other Americas.

Summary

Tensions in the Middle East and Economic Ripple Effects

Tensions in the Middle East are escalating, with various regional and international actors involved, including militant groups and rebels from Yemen. This conflict is having economic ripple effects, particularly on the region’s biggest export, oil. Economist Rachel Ziemba expresses concern about the impact of the conflict on the global economy, especially the price of fossil fuels. The escalation of conflict in the Middle East could strangle oil and gas output, which would have far-reaching effects on the global economy, food prices, and food security.

Impact on Shipping Routes and Global Trade

The Red Sea and the Suez Canal play a critical role in the global supply chain, with a significant percentage of the world’s shipping passing through this area. The Houthi rebel group’s attacks in the Bab el-Mandeb Strait, which borders Yemen, have created a dangerous situation. These attacks have led to a substantial increase in war risk insurance for the Red Sea, adding millions of dollars in extra insurance costs. Shipping companies are charging extra fees and rerouting vessels to avoid the Red Sea, resulting in additional costs and delays. These delays and rerouting efforts may lead to higher labor costs, additional fuel expenses, and potential penalties for late deliveries, ultimately impacting global shipping and consumer goods prices.

Potential Economic Consequences and Historical Context

Historical events, such as the closure of the Suez Canal in 1967, serve as a reminder of how conflicts can disrupt shipping and impact global trade. The involvement of the US military in the Red Sea due to Houthi attacks also affects global trade. The combination of violence in the region and low water levels in the Panama Canal puts significant stress on global shipping, with a significant percentage of container ships avoiding the Red Sea. Additionally, Russia’s reliance on shipping for oil and natural gas transportation makes them more vulnerable to disruptions. There are concerns about potential disruptions in shipping in the Red Sea leading to similar scenarios in the Persian Gulf. The potential involvement of Iran in the conflict and its impact on oil production and prices adds another layer of complexity. A hot war between Iran and Israel could have severe consequences for global oil prices and economic growth. The historical context of the 1973 Arab oil embargo highlights the potential impact on the US economy. Current factors affecting oil prices, such as the global economic slowdown and increased oil output from the US and other Americas, further contribute to the complex dynamics at play.

Conclusion

The escalating tensions in the Middle East and the conflict’s economic ripple effects, particularly on oil and global shipping routes, raise concerns about the potential consequences for the global economy. The situation in the Red Sea region is impacting goods from Asia to Europe, adding time and energy to shipments. The involvement of various actors and the potential for further escalation highlight the need for continued monitoring of the situation and its potential impacts on global trade and economic stability.