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Middle East Security Concerns Could Threaten The Global Economy

There was recently an attack on the Mercer Street vessel belonging to an Israeli billionaire, with Iran being blamed for the incident. These kinds of attacks have been happening since the beginning of the year, and it appears highly likely that they will continue. There is a possibility of maritime security breaches in the Gulf of Oman and the Strait of Hormuz. Such developments could lead to a rise in political, economic, and security issues, especially if they were to coincide with an Israel-Iran confrontation.

Attacks on Israeli-owned ships: An overview

Since the beginning of 2021, attacks on ships passing through the Gulf routes have led to increased maritime concerns. In April, Hyperion Ray, an Israeli-owned ship, experienced what was described as a missile attack near Fujairah port, UAE. Before that, in February, there was an explosion that hit the Israeli-owned MV Helios Ray near the Gulf of Oman. 

Recently, a similar attack occurred in the Gulf of Oman. For context, the MT Mercer Street is a Liberian-flagged oil tanker owned by a Japanese firm that is managed by a London-based company, called Zodiac Maritime. Zodiac Maritime happens to be owned by the Israeli billionaire, Eyal Ofer.

On 30 July, the ship was moving through the Gulf when it was struck by a kamikaze drone carrying military-level explosives. The drone blasted through the oil tanker bridge and created a hole where the captain and the crew commanded the vessel. This attack, unfortunately, led to the demise of 2 crew members, one from the United Kingdom and one from Romania. Hours later, the same vessel was under attack by two armed drones northeast of Masirah Island off the coast of Oman. The UK, USA, Romania, and Israel have blamed Iran for the attack, while Iran has denied all of these allegations. 

Related: Europe Faces LNG Supply Crunch

On 5 August, Israeli Defence Minister Benny Gantz stated that in response to the attack, Israel is prepared to attack Iran. Upon investigations of the incident, on 7 August, the USA stated that the remains of the drones were examined, and it is clear that they were made in Iran. 

In an unrelated event, on 4 August, the Asphalt Princess, a Panama-flagged bitumen tanker, was allegedly boarded by Iranian hijackers. It took place on 3 August, off the coast of the Emirati port of Fujairah. These events unfolded in the Strait of Hormuz, where other cargo ships reportedly encountered sudden steering difficulties. Fortunately, no one was injured during the hijacking, and the vessel was freed hours later. Washington made a statement that the hijackers were Iranian, although Iran was quick to deny its involvement.

Relevance to the global economy

As of now, not much attention has been paid to these kinds of incidents. Critics seem to dismiss the issue as yet another security dilemma in the Middle East. However, this time the situation is different. The Gulf of Oman and Strait of Hormuz are bustling maritime trade routes in the world. They open to the Persian Gulf and the Arabian Sea. They are essential routes for the oil-exporting countries in the region. It goes without saying that the security of these routes and the maritime industry in the region is of great interest to all countries involved. 

These attacks are dangerous on multiple levels. International shipping is an essential aspect of the global supply chain for trading purposes. About 90 percent of all the trades that take place in the world are carried through maritime trading routes. Because the operation of these routes has been managed so efficiently thus far, there is little attention paid to the consequences of its disruption. That said, once its disruption is felt through a shortage of goods, awareness of the situation naturally becomes heightened. One such instance took place during the beginning of the COVID-19 pandemic. During the early outbreak, China closed the port of Yantian, the third busiest port in the world. 

When the port handling 13 million containers worth of goods was partially closed, retailers feared that it would impact trade for the whole year. Given this reaction to the halt of one port and the potential for such a massive backlog, as a result, one can’t help but consider what this might mean for the global economy if both the Gulf of Oman and the Strait of Hormuz’s routes were to close down due to an Israeli response to these alleged Iranian actions. 

Importance of Gulf of Oman and Strait of Hormuz

Simply put, several cargo vessels flying flags of countries ranging from Malaysia to Singapore pass through this region. This route is the main artery of sea routes for cargo vessels shipping several essential goods, including oil from this region, that consequently keep the engine of these globalized economies running. 

Looking Ahead 

Thus, with the already tense situation that is unfolding between Iran and Israel, mainly as a consequence of Iran’s developing nuclear program, all these attacks taking place on the cargo vessels crossing this region may very well impact stability in the region.

These attacks appear to be designed to damage the countries to which these ships belong, as opposed to mere piracy. Perhaps, given the recent theme, for now, only Israeli ships are at greater risk of such attacks. However, the importance of maritime security for all countries is unchanged. As tensions rise in the region, so does the risk of collateral damage as a result. That said, based on how similar situations have been dealt with in the past, as with ports closing as a result of the pandemic, it would appear that the associated political concerns, as well as the security of the ships’ crews, will only be made a priority when the consumer begins to feel the effects of such activities. Recognizing and responding to these relatively small attacks is essential for the security and prosperity of a multitude of international interests. If they are left unaddressed, the harm caused has the potential to be felt on an exponentially larger scale, with the global supply chain most vulnerable. Given the current tensions between Israel and Iran, it would be wise to keep a close eye on how this situation develops. 

By Global Risk Insights

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