While the world is waiting to see if Iran and the US will come to terms on a base framework agreement that could officially terminate the state of conflict between the two countries, governments with close trade ties with Gulf countries, Tehran, and the six members of the Gulf Cooperation Council, have been carefully monitoring the situation with an eye on the future.
A global crisis in maritime began on 28 February, when Iran closed the Strait of Hormuz, a vital waterway that carries a quarter of the world’s oil, to all ships affiliated with states that supported the US-Israeli war on the country.
A ceasefire was brokered in early April by Pakistan to allow for peace talks and the reopening of trade routes. However, the US launched a naval blockade of Iranian ports. In retaliation, Iran tightened its grip on the Strait by imposing strict new passage rules and demanding that all passing ships pay fees, submit to inspections, and follow specific paths dictated by Iranian authorities.
This move turned the region into a high-risk zone for international shipping, causing energy prices to spike and forcing global trade companies to start looking for alternative land-based routes and railways.
“This war caused a strategic shift in the regional and international environment of the trade environment to and from the Arab Gulf zone,” said Ahmed Kandil, head of the international relations and energy studies unit at Al-Ahram Centre for Political and Strategic Studies.
“The conflict has indeed prompted a surge in the prices of many commodities, especially oil and gas, but this is only one of the many other impacts that this war has had on trade,” he added.
“This region was for long classified as a free-flow zone of oil and gas trade, but due to the war, this classification has shifted to make it a high-risk zone,” he explained.
He added that with the “high dependence” of the Arab Gulf countries on imports for food supplies and raw and construction materials, prices have skyrocketed as a result of the war and the subsequent closure of the Strait of Hormuz.
This does not just happen as a result of the fewer vessels that have been allowed to pass safely through this waterway, but also due to the rise in shipment insurance costs. “And it is ultimately the consumer who has to put up with the financial cost,” Kandil stated.
According to Kandil, the conflict around and close to the closure of the Strait of Hormuz has also influenced trade in key Gulf harbours, due to its proximity to the zone of clashes. This, he said, led some ships to abandon harbours like that of Jebel Ali Port in Dubai in favour of the Omani ports of Sohar and Duqum.
“Since the war started, shipping companies have shifted their attention from high-efficiency trade routes to safer trade routes, and obviously, this came with a high cost,” Kandil said. What is happening today, he argued, “would most likely introduce some really significant changes in the trade roads, the map of logistic services and relevant investments in the Gulf area and at a wider scale in the Middle East.”
Consequently, he added, trade and shipping companies could permanently consider alternative harbours, lands, and railroads, as well as investment in oil and gas pipelines to avoid being caught in such a waterway blockade in the future.
“Trade and shipping companies have decided that their future business should be liberated from dependence on a single trade road; the key issue now for these companies is about strategic flexibility that could support continuity and reduce the risks of long-term interruptions and the subsequent complications thereof,” he said.
According to Kandil, it is hard to see that the Gulf zone would be permanently liberated from tension and regional conflicts anytime soon. “This is not just about its very sensitive geographic location but also about the fact that it is a central spot of oil and gas trade,” he argued.
Kandil explained that the viability of the operating oil and gas pipelines in the Gulf was demonstrated by helping to avert a total halt in energy exports, which made many realize that the time is now to invest in expanding the zone of these pipelines and to consider building new pipelines.
“Within the same context, I think the world got to see that the Suez Canal and the SUMED pipeline demonstrated their value in creating a safety valve for global energy trade at this moment of emergency,” Kandil said.
“Overall, I think that one of the most direct consequences of the current conflict is that the world will move from what could arguably be called the trade geography of straits to one of multiple and parallel roads as a safety network,” he stated. This, he explained, is not just about the Strait of Hormuz but also about the Strait of Bab El-Mandab, which had been subject to threats of possible closure as part of the same conflict.
One of these roads, Kandil argued, is the Gulf-Arab corridor that connects the Red Sea and Mediterranean harbours via Saudi Arabia and Egypt. “This corridor is one of a network of land roads, railways, and pipelines that connects the east of Saudi Arabia with its west, leading to the Red Sea and then to Ain Al-Sokhna harbour, where oil could be passed to the Sidi Krir harbour on the Mediterranean, while other supplies could be carried through the roadways.
“This particular corridor is very compatible with the Saudi strategy to be a hub for logistic services as part of the 2030 Vision,” Kandil stated.
Another corridor, he said, is the Development Road, a 1,200 km highway and railway mega-project connecting the Gulf to Turkey, designed to transform Iraq into a trade hub. “Via Turkey, this corridor connects the Gulf with Europe via a land highway, and it reduces dependence on traditional water paths,” he added.
IMEC (India-Middle East-Europe Corridor) is a third land-road scheme that Kandil said is bound to get a lot more attention in the near future. Conceptualized as a connecting pathway that links India with Europe via the United Arab Emirates, Saudi Arabia, Jordan, and Israel, leading to the Mediterranean and southern European countries, IMEC is an ambitious project expected to cut cargo costs and transit times by one-third on average.
According to Kandil, the US is particularly supportive of IMEC. “It offers an alternative to some of the long-established trade pathways, and it certainly cuts down on the significance of China’s Road and Belt Initiative,” he said.
IMEC was proposed in September 2023, 10 years after the Road and Belt Initiative was proposed. The coverage zone of the Road and Belt Initiative is certainly much wider. However, as Kandil noted, neither corridor is something that could come into service in a matter of a few years.
Consequently, he argued, the concern over the safety and sustainability of trade pathways is not a matter that could be guaranteed on any short-term basis. “However, I think it is only fair to argue that the war on Iran and its consequences on international trade will give a push to the concerned countries to be more invested in these and other similar schemes,” Kandil said.
In addition to the region-to-region and continent-to-continent roads and railways, Kandil is expecting considerable investment in inter-regional railways, especially a railway to connect the six member states of the GCC: Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, and the UAE. “Once this project is accomplished, it could connect to any of the corridors that are up to implementation,” he said.
The clock is ticking for the dependence on the Strait of Hormuz for global energy and supplies trade from and to the Gulf, he stated. “What is coming ahead of us is a total reconceptualization of the geography of trade lines,” he said.
“I am not saying though that the Strait of Hormuz or that of Bab Al-Mandab or any of the traditionally inexpensive and relatively fast waterways would fall out of business; I am saying they be matched by other networks of land roads and railways that will connect the Gulf not just with Europe and the rest of Asia but also with Africa which is an up-and-coming destination of trade with the Gulf,” he added.
The Gulf countries, Kandil said, would be keen to invest in such new roads given the fact that they serve strategic interests for these countries, “especially the economic interests.” He explained that in view of the significant dependability of the Gulf countries on exporting oil and gas and importing a wide range of supplies, their investments in building roadways and railways “are inevitably worthwhile in every sense of the word because they secure the sustainability of their exports and imports.”
“Moreover, with such an effective, large and dependent network of roads, which is connected to key harbours, the Gulf countries could move beyond the economic moment of oil exports to one of becoming a hub for logistic services and international trade,” Kandil said. “Again, this is something that several Gulf countries, especially Saudi Arabia, Qatar, and the UAE, have been eyeing for a long while,” he added.
Kandil argued that the building of these roadways will effectively turn the Gulf countries into a highly competitive economic block in the best interest of each of the six states.
Egypt, Kandil added, has what it takes, in terms of location, infrastructure, and expertise, to connect to such an upcoming hub in the Gulf, across the Red Sea. This, he explained, means that Egypt too would move beyond the moment of being a passing passage of trade, essentially through the Suez Canal, to being party to a regional logistics service scope, and being part of a safe and dependable network of logistic services.”
Kandil added that Egypt’s existing gas liquefaction infrastructure further strengthens its ability to participate in future regional projects.
“Clearly, this requires mega investments in upgrading current infrastructure and in creating new ones,” he said. “It also requires an expanded and expedited process of digitization of trade and customs management and of connecting the country’s industrial zones with the future trade corridors,” Kandil noted.
“Egypt needs to revisit its economic vision for the future in view of the recent developments and their impact on the future of trade and logistics services,” he added.
According to Kandil, in view of the fact that the future trade system will not be headed by a single country, neither at the regional nor international levels, Egypt could pursue partnerships. “An obvious choice for possible schemes of cooperation and integration would be Saudi Arabia, the UAE, and Qatar,” he said.
Iraq and Turkey, Kandil added, are also potential partners for Egypt. “Iraq is actually a possible future strategic partner, especially with the upcoming Development Road,” he said. “Turkey is an inevitable gate to Europe, and recently there has been a push, endorsed by both countries, for trade cooperation,” he said.
Egypt, Kandil said, will continue to attract interest from Europe, China, and India because of its strategic location linking Asia, Africa, and Europe.
“Egypt has what it takes to attract the interest of cooperation of these economic powers, and it has what it takes to work on a balanced approach away from siding with one power over the rest,” he added.
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