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Source: Forbes

Dec 31, 2023

Iran’s Economic War On The West

By Simon Constable

Iran’s threat to close the Mediterranean Sea to shipping is a declaration of economic war on the west. It’s something that investors should take seriously as much of the world’s trade relies on shipping routes through that territory.

Just before the Christmas holiday a representative of Iran’s Revolutionary Guard Corps threatened to close the strait of Gibraltar, according to a report from Reuters news agency.

Gibraltar is currently a U.K. possession which not only protects that territory but also protects allied vessels transiting the narrow strait with UK Royal Navy warships.

The IRGC announcement comes shortly after Iranian-backed Houthi rebels based in Yemen began targeting commercial ships traveling through the Red Sea earlier this year. The Red Sea is key to shipping goods or commodities through the Suez Canal at the eastern end of the Med.

Economic Blockages from the Red Sea to Gibraltar

The recent attacks on commercial shipping in the Red Sea has sent some shipping companies to divert their cargo vessels away from Suez and instead take the rout around the Cape of Good Hope at the tip of Southern Africa.

Notably, Maersk, one the biggest container shipping companies in the world, decided to pause its use of the Red Sea following one of its vessels was attacked but the Houthis.

It should be clear to even casual observers that if the Houthis can effectively scare away shipping from the Red Sea, that Iran can do the same to those vessels traversing the Strait of Gibraltar. And therein lies the economic warfare.

Approximately $1 trillion of container shipping goes through the Suez Canal each year, or 12% of global trade, according to estimates from New Zealand’s government.

Then there is also the energy supply. Nearly one-in-twenty (4.5%) barrels of oil produced globally go through the Suez Canal each day, according to the IOSR Journal of Business and Management. That’s a large enough amount to move energy prices if the flow of vessels is disrupted.

At the other end of the Med, more than 20% of all seaborne world trade passes through the Strait of Gibraltar.

Costs of economic war are potentially huge

When you start adding these percentages and volumes up it becomes clear that anyone attempting to subdue trade at either end of the Med has the potential to do some serious economic harm to the global economy. In this case it is Iran and the Iranian-backed Houthi rebels.

Imagine, if you can that suddenly more than 20% of world trade ceased due to extra-territorial military acts from terror groups? That would be worse than the Great Recession back in 2007-2009. Then add on lack of access to energy from the oil-rich middle east and you get something far worse than a recession in the west.

If trade does continue unfettered, it will likely need to go around the Cape of Africa or across land, sending costs higher and boosting inflation once again.

To be clear, this looks like a declaration of diabolical economic warfare from Iran and the groups it backs such as the Houthis, and the designated terror organization Hamas.

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