Geopolitics Supply Chain run down
Pivotal Events that Shaped Geopolitics and Global Supply Chains in 2024
20th December, 2024
The Red Sea crisis and impact on supply chain.
Houthi attacks on commercial vessels in the Red Sea led major shipping companies like Maersk and MSC to suspend operations in the region. This disruption forced ships to reroute around the Cape of Good Hope, adding transit time and costs, and significantly impacting global trade routes. The Red Sea crisis, compounded by Suez Canal rerouting, has slashed global shipping capacity by 9 percent, stretching delivery times and pushing freight costs sky-high. Asia-Europe shipping costs surged nearly five-fold, while rates on other routes more than doubled. Major auto manufacturers in Europe have paused production due to delays in obtaining parts from Asia, threatening the auto supply chain, especially for new-energy vehicles. These disruptions risk reigniting inflation. JP Morgan estimates a 0.7 percentage point rise in global goods inflation and 0.3 points in overall core inflation by mid-2024. Retailers had to renegotiate freight contracts upward, further squeezing margins. While a global oversupply of container ships could eventually ease shipping costs, sustained disruptions stalled global industry recovery, with growth struggling to exceed 1–2 percent annually. The crisis is a live example of the fragility of interconnected supply chains, with delays and rising costs likely to ripple across sectors well into 2025.
BRICS cooperation and recent advancements.
The 16th BRICS summit introduced “BRICS Pay,” a payment system aimed at reducing reliance on Western financial systems, signaling a shift towards alternative economic alliances. The group has been challenging U.S. dominance, particularly by undermining Western sanctions and pushing for alternatives to the U.S. dollar. As BRICS expands, the U.S. must reassess its foreign policy towards these nations. While the BRICS alliance is not strictly anti-U.S., its increasing cooperation and geopolitical power could reshape the global order. The U.S. has historically focused on bilateral relations but now needs a comprehensive strategy to engage with the group and its expanding influence. BRICS’ growing strength impacts global trade and economic systems. By promoting multipolarity, BRICS challenges U.S. economic dominance, potentially weakening the dollar’s role and introducing new financial systems like BRICS Pay. The group’s emphasis on local currencies, particularly in trade, could disrupt the global supply chain, reducing reliance on the U.S. dollar for transactions. BRICS’ cooperation on space governance and energy security also challenges U.S. interests in these sectors. For the global supply chain, this means shifts in trade dynamics, currency exchange systems, and new trade routes, altering long-standing U.S. influence in the international market.
Global conflict and oil market volatility.
Geopolitical conflicts, especially in the Middle East, have led to significant fluctuations in oil prices, affecting global economies. The International Energy Agency (IEA) forecasted a rise in global oil demand, with petrochemical feedstocks driving the increase. While non-OECD demand, especially from China, has slowed, emerging economies in Asia are still pushing oil consumption up. The IEA emphasizes supply growth, particularly from non-OPEC+ countries, including the U.S. and Brazil. Despite these developments, OPEC+ has delayed production increases due to geopolitical uncertainties and slowing global demand. Oil price stability remains under threat, as volatility could arise from unexpected supply shocks. Conflicts, such as those in the Middle East, could disrupt oil and gas production and supply chains, leading to increased price volatility. OPEC+ is expected to continue managing supply, but tensions in oil-producing regions may keep markets unpredictable. The impact of geopolitical tensions on the global supply chain is profound. Fluctuating oil prices directly affect transportation, manufacturing costs, and energy production. Higher oil prices lead to increased operational expenses across industries. The instability in oil-producing regions can cause supply disruptions, making global trade less predictable. As geopolitical risks persist, companies may face higher costs for raw materials, logistics, and energy, leading to inflationary pressures and potentially delayed deliveries.
The Panama Canal drought and global maritime commerce.
Severe drought conditions reduced the Panama Canal's capacity, causing delays and forcing shippers to seek alternative routes. This bottleneck affected the timely movement of goods, exacerbating supply chain challenges. The Panama Canal is a crucial global trade route, handling 5 percent of global maritime commerce and providing a shortcut for shipments between the Atlantic and Pacific Oceans. The drought lowered water levels in Gatún Lake, leading to daily vessel transits being cut by nearly 40%, and weight restrictions were imposed, reducing cargo loads. Shipping costs surged as companies rerouted vessels around South America or faced delays. Industries dependent on timely shipments, such as consumer goods and medical supplies, suffered the most. The canal’s draft limits affected both smaller Panamax and larger neo-Panamax vessels, increasing operational costs and disrupting schedules. Shipping companies like Maersk have shifted cargo to rail, highlighting the crisis’s severity. Analysts project a 4,000-ship reduction in annual traffic, impacting global trade. Long-term solutions, including new reservoirs and forest restoration, are proposed, but they face financial and legal hurdles. Currently, global supply chains now face increased costs, delays, and carbon emissions. Moreover, it increases shipping risk, considering the Red Sea crisis has made a passage through the Suez Canal a no-go area for shipping company.
US-China trade tensions and re-election of Donald Trump.
Donald Trump’s victory in the 2024 U.S. presidential election has introduced a more aggressive “America First” agenda, impacting international relations and alliances. It also intensified trade disputes between the U.S. and China. China’s regulatory actions against U.S. companies and restrictions on critical mineral exports, such as gallium and germanium, affected industries dependent on these materials, including semiconductors and defense. Trump’s vow to impose sweeping tariffs also roiled markets. A proposed 10 percent tariff on Chinese goods and 25 percent on all imports from Mexico and Canada threatens established trade partnerships. These actions could disrupt the North American auto industry, a highly integrated sector. Mexico’s auto and electronics exports, alongside Canada’s energy exports, are vulnerable. This creates uncertainty for businesses relying on cross-border trade. Rising tariffs also escalate tensions with China, which may retaliate cautiously. These measures could increase manufacturing costs, disrupt supply chains, and inflate consumer prices globally. Industries like semiconductors and electric vehicles are especially exposed because of the reliance on critical minerals from China. Meanwhile, Trump’s proposed 10 percent tariffs on Chinese imports will face significant challenges because of loopholes and under-reporting of Chinese imports to the U.S. In the short term, global supply chains face rising costs and delays. In the long term, these disputes may reshape trade dynamics, forcing industries to diversify supply sources and reconsider production strategies.
The Francis Scott Key Bridge collapse in Baltimore.
The collapse of this critical bridge in Baltimore blocked access to major marine terminals, compelling shipping lines to divert vessels to other ports. This incident disrupted supply chains, particularly in the automotive and manufacturing sectors. Baltimore is a major hub for roll-on/roll-off cargo, including cars, trucks, and trailers, which few other ports can handle. Ships already at the port were stranded, and incoming vessels had to divert to ports like New York, New Jersey, or Roanoke, increasing transit costs and delivery times. Warehousing and trucking networks are also stretched as goods arrive far from intended destinations. While the accident is unlikely to significantly affect global shipping, it highlights vulnerabilities in U.S. infrastructure. Older facilities, like the 1970s-era Key Bridge, were not designed to accommodate modern, massive cargo ships. As the size of vessels grows, risks of similar incidents rise. This disruption intensifies pressure on supply chains already strained by other issues, including the Panama Canal drought and geopolitical instability. The event reflects another turning point for port infrastructure and the necessary needs for upgrades at intervals to mitigate future supply chain crises.
East Coast dockworkers’ strike on contract issues.
A strike involving over 45,000 dockworkers halted operations at major U.S. East Coast ports. This labor action led to shortages and price increases in various goods, including food and holiday merchandise, due to delayed imports. The October 2024 strike disrupted global trade as dockworkers protested for better pay and job security. The short-term resolution offered a wage increase but left key issues, including automation, unresolved. Ports like New York/New Jersey and Savannah, which handle critical imports and exports, were paralyzed. Shipping backlogs took weeks to clear, with the strikes costing an estimated $5 billion daily. If another strike occurs in January 2025, the impact could worsen. East and Gulf Coast ports manage a significant share of U.S. imports and exports, including fresh produce, industrial machinery, and consumer goods. Prolonged closures would lead to severe global disruptions, compounded by higher tariffs under the incoming administration and Lunar New Year shutdowns in Asia. Delays, increased costs, and logistical challenges are expected to escalate, with ripple effects on global supply chains. A strike involving over 45,000 dockworkers halted operations at major U.S. East Coast ports. This labor action led to shortages and price increases in various goods, including food and holiday merchandise, due to delayed imports. The October 2024 strike disrupted global trade as dockworkers protested for better pay and job security. The short-term resolution offered a wage increase but left key issues, including automation, unresolved. Ports like New York/New Jersey and Savannah, which handle critical imports and exports, were paralyzed. Shipping backlogs took weeks to clear, with the strikes costing an estimated $5 billion daily. If another strike occurs in January 2025, the impact could worsen. East and Gulf Coast ports manage a significant share of U.S. imports and exports, including fresh produce, industrial machinery, and consumer goods. Prolonged closures would lead to severe global disruptions, compounded by higher tariffs under the incoming administration and Lunar New Year shutdowns in Asia. Delays, increased costs, and logistical challenges are expected to escalate, with ripple effects on global supply chains.
Geopolitical tensions in the Taiwan strait.
China’s “gray zone” tactics, including potential blockades and cyberattacks aimed at Taiwan, threatened the island’s economy. Given Taiwan’s significant role in global semiconductor production, such tensions posed risks to technology supply chains worldwide. Tensions in the Taiwan Strait have escalated due to Taiwan’s President Lai Ching-te asserting its sovereignty. His firm stance, contrasting with his predecessor’s cautious diplomacy, has provoked sharp responses from Beijing, including military drills resembling invasion rehearsals. China’s military aggression, combined with economic and political pressure, seeks to undermine Taiwan’s governance and deter international support. Meanwhile, the U.S. balances its support for Taiwan’s security with efforts to prevent conflict, providing arms while urging restraint on both sides. China’s increasing hostility complicates diplomatic relations, raising risks of misunderstanding or confrontation. Global supply chains, particularly in technology, are at risk due to Taiwan’s pivotal role in semiconductor manufacturing. Disruptions in Taiwan’s economy or potential blockades would ripple through industries reliant on these chips, impacting everything from electronics to automotive production. Prolonged tensions might also prompt companies to diversify their supply chains, increasing costs and delays. The Taiwan Strait's volatility is a critical intersection for geopolitics and global commerce, where economic stability hinges on diplomatic and strategic de-escalation.
Middle East and collapse of the Syrian Government.
Syrian President Bashar al-Assad fled the country amid a rebel advance into Damascus, ending over a decade of civil war and altering Middle Eastern geopolitical dynamics. The Assad regime, backed by Russia and Iran, collapsed after the military situation worsened, and crucial allies became distracted by other conflicts. The collapse occurred abruptly, after doubts among Assad’s followers grew and rebel forces captured key cities like Aleppo. Despite Assad’s brutal rule, which included widespread human rights violations, the fall of his regime offers a possibility for change, inspiring hope for the future. However, the collapse of Assad’s regime has significant global implications. Syria’s disruption impacts regional stability, potentially influencing global energy markets, particularly oil prices, given the region’s strategic position. The end of Assad’s rule might disrupt supply chains in the Middle East, especially in sectors reliant on Syrian transit routes. Additionally, the shifting dynamics in Syria could lead to increased refugee flows, affecting neighboring countries and global humanitarian efforts. The weakening of Russian and Iranian influence might alter global political alignments, potentially impacting international trade and diplomatic relations. Finally, the rise of new, more stable governance could foster better regional cooperation, positively affecting Middle Eastern supply chains.
Escalation of the Israel–Hamas conflict and consequences.
The ongoing war between Israel and Hamas has escalated, with significant regional implications and international involvement. Israel’s tactical ground campaign has seen significant military engagement, with Israel focusing on isolating Gaza and eliminating Hamas military forces. Despite the war’s human cost, Palestinian political dynamics have remained unchanged, with Hamas seeking national unity. Israel’s war has incurred massive financial costs, with estimates reaching $69 billion by 2024. Meanwhile, Hezbollah’s involvement in the conflict misjudged Israel’s resolve. Iran, though engaged, struggled with its regional proxies’ challenges. The Houthis escalated tensions by targeting commercial ships, affecting global shipping and trade. The war’s impact on the global supply chain is significant. The disruption of maritime routes in the Red Sea, particularly due to Houthi attacks, has caused rerouting and delays, especially affecting Suez Canal revenues. Jordan’s economy has suffered from increased import costs and regional instability. Israel’s military expenses strain its economy, influencing trade and financial stability. Moreover, the conflict has diverted global attention from the Indo-Pacific, shifting focus away from trade routes and economic cooperation in Asia. These disruptions have ripple effects, causing supply chain delays and influencing global trade policies.
Ongoing political instability in Europe.
Several European governments, including those in Germany and France, have collapsed due to internal conflicts, leading to a reevaluation of political structures within the European Union (EU). France is grappling with a political crisis as President Macron faces opposition over a failed budget and the resignation of Prime Minister Barnier. In Germany, Chancellor Scholz's government fell apart due to disagreements over economic policies, particularly concerning government borrowing. Both crises are compounded by the looming presidency of Donald Trump and Europe’s security concerns, particularly the war in Ukraine. Meanwhile, Norway is reassessing its stance on joining the EU. But it is not all gloomy, Sweden officially joined NATO, becoming its 32nd member, reflecting shifting security dynamics in Europe. The political instability in France and Germany could disrupt the global supply chain by creating uncertainties in two of Europe’s largest economies. Instability in these key nations could lead to unpredictable fiscal policies, affecting businesses and industries reliant on stable government frameworks. The lack of a clear, unified European stance on key issues like defense and the economy could undermine international trade agreements, as cooperation among EU members becomes more fragmented. Furthermore, with Germany's economy facing stagnation and the collapse of the coalition, there might be delays in manufacturing and logistics, especially in energy-intensive industries like automotive. Similarly, France’s political crisis risks delays in policy implementation, impacting sectors such as agriculture and finance. These uncertainties, coupled with concerns over global security, could prompt companies to reconsider investments or shift their supply chains to more stable regions, potentially increasing costs and further disrupting global trade.
The Alliance of Sahel States (AES) and Sudan’s escalating civil war.
Formation of the Alliance of Sahel States (AES): In September 2023, the military juntas of Mali, Burkina Faso, and Niger established the AES, a mutual defense pact aimed at enhancing security cooperation in the Sahel region. This alliance signified a shift towards regional self-reliance in addressing security challenges. However, the Economic Community of West African States (ECOWAS) has approved a transitional exit timeline for Niger, Mali, and Burkina Faso, following their decisions to leave the bloc. This move underscored the complexities of regional integration amid political upheavals. The conflict between the Sudanese Armed Forces and the Rapid Support Forces intensified, leading to a severe humanitarian crisis with significant casualties and displacement. The war attracted international attention due to its regional implications and the involvement of foreign actors. The formation of AES and the Sudanese conflict have profound implications for global supply chains. The AES countries’ withdrawal from ECOWAS could disrupt trade routes and border movements, affecting the flow of goods in West Africa. As these nations seek to forge new economic and political alliances, global supply chains may shift to accommodate their new strategic partners, such as Russia, China, and Turkey. The Sudan conflict exacerbates these disruptions, particularly affecting the availability of vital resources like gold and agricultural products, and further displacing workers, reducing productivity. These combined regional instabilities threaten to impact supply chains for industries reliant on West African minerals, agriculture, and labor.
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