Marc Cuniberti commentary: Maritime piracy could spike inflation

In the midst of the ongoing Israeli conflict, the repercussions are beginning to resonate beyond the immediate theatre of war, posing a potential threat to global economic stability.

The surge in military actions in Gaza has triggered a notable escalation in piracy and assaults on shipping along the crucial oil supply route. The primary route for transporting oil commences in the Persian Gulf, traverses the Strait of Hormuz, progresses through the Gulf of Oman, the Arabian Sea, and the Gulf of Aden. Subsequently, it negotiates the Bab Al-Mandeb Strait, leading to the Red Sea, and finally reaching the strategically vital Suez Canal, connecting to the Mediterranean Sea.

With the heightened frequency of ship hijackings and the looming threat of attacks by pirates, rockets, and drones, shipping companies and the U.S. military are on heightened alert. The Bab Al-Mandeb Strait, a narrow passage akin to the Strait of Hormuz but smaller, is now a focal point of concern. If a ship were to be sunk, rendering the strait impassable, the only alternative route around the Cape of Good Hope would significantly extend travel time, incurring substantial additional costs.

The implications extend beyond increased transportation costs. Extended travel times result in fewer trips, delays in supply lines, and heightened insurance costs due to piracy concerns. Fuel, maintenance, and manpower expenses rise, and preemptive price increases in goods become inevitable as suppliers grapple with elevated costs along the entire supply chain.

The ramifications are far-reaching, impacting not only the price of oil but also causing shortages in various products due to delays in deliveries and the need for increased stocking. Perishable goods suffer as longer sea voyages escalate equipment and energy costs, further straining supply chains. In a post-COVID world where supply lines are just stabilizing, a significant rerouting of oil and goods threatens to impede recovery, potentially exacerbating inflation and disrupting progress.

Amid global efforts to curb inflation through monetary and fiscal policies, the escalating threats posed by piracy and potential disruptions to key shipping routes could introduce a new and unexpected challenge, with far-reaching consequences for the Western world and beyond. The actions of determined adversaries armed with rockets could not only sink ships but also have a cascading impact, potentially plunging the Western world into economic turmoil marked by soaring inflation.

Source: Gold Country Media