What would a closure of the Bab el-Mandeb Strait mean for the global economy?

A closure or severe disruption of the Bab el-Mandeb Strait, a critical maritime chokepoint linking the Red Sea with the Indian Ocean, would have significant consequences for global energy markets, shipping and consumer prices.

The strait is an important route for trade between Asia, the Middle East and Europe, including shipments of crude oil and liquefied natural gas (LNG). Any prolonged disruption would force vessels to seek alternative routes while putting pressure on energy supplies and transportation costs.

Energy supplies and oil prices

The Bab el-Mandeb is an important corridor for Middle Eastern energy exports and could become even more significant if other routes, including the Strait of Hormuz, were disrupted.

Avoiding the strait can sharply reduce crude flows from Red Sea export hubs such as Yanbu. Saudi crude shipments through Bab el-Mandeb have previously fallen from a peak of about 3 million barrels per day to 400,000 barrels per day or less when vessels were forced to avoid the route.

A disruption would also force refiners in Asia and elsewhere to compete for alternative crude cargoes. That could push global benchmark oil prices, including Brent and West Texas Intermediate, above $100 a barrel and towards $108 a barrel.

Higher crude prices would also feed into refined fuels. Diesel, which is widely used by freight trucks, tractors and trains, could face particularly strong upward pressure, with US prices potentially rising by more than 50% to above $6 per gallon.

Longer shipping routes and higher freight costs

Ships unable to pass through the Red Sea and Bab el-Mandeb would generally need to travel around the Cape of Good Hope at the southern tip of Africa.

The alternative route adds thousands of nautical miles to some journeys between Asia, the Middle East and Europe. It can also add roughly a month to transit times, depending on the route and destination.

Longer voyages mean higher fuel consumption and additional costs for crews and vessels. Maritime insurance premiums can also rise when shipping companies face increased security risks. Together, these factors would put upward pressure on global freight rates.

Inflation and consumer prices

Higher energy and transportation costs would spread beyond the shipping and oil industries.

Food and other commodities could become more expensive as higher fuel, freight and fertilizer costs increase the cost of producing and transporting goods. Manufacturers and retailers could also face higher costs for imported components and finished products.

If such pressures persist, inflation could become more difficult for central banks to contain. That could increase pressure for higher interest rates, raising borrowing costs for households and businesses.

Pressure on developing economies

Developing countries with heavy debt burdens and limited fiscal room would be particularly exposed to a prolonged disruption.

Higher prices for imported fuel, food and other essential goods could increase pressure on government finances while adding to household cost-of-living pressures.

Countries that depend heavily on maritime imports could also face delays at ports and higher freight bills. Lebanon, for example, could face additional vulnerabilities related to fuel and LNG supplies if shipping disruptions affected its access to international markets.

Why the strait matters

The economic importance of Bab el-Mandeb comes from its position as a link between the Red Sea and the Indian Ocean. A prolonged closure would not necessarily stop global trade, but it would make many journeys longer, more expensive and potentially less reliable.

The effects would depend on how long the disruption lasted, how much shipping was diverted and whether alternative energy supplies were available. But a sustained disruption could put simultaneous pressure on energy prices, shipping costs, inflation and the finances of countries dependent on imported goods.

With inputs from KTVZ21, UNCTAD, and The Beiruter.