Global Trade Meets Its Weakest Link

For the last few decades, globalisation has thrived on a simple assumption: goods move freely, cheaply, and predictably. That assumption is now under strain.

The Strait of Hormuz, through which roughly 20% of global oil trade flows, has seen a collapse in maritime traffic following escalation involving Iran, with daily transits falling from around 140 vessels to just a handful.1

This is not a marginal disruption. It is a failure of one of the world’s most significant trade pathways.

When a chokepoint this critical is disrupted, the effects are global.

A Trade Shock, Not Just an Energy Shock

The immediate impact is clear.

Ships are being delayed and rerouted. Insurance premiums have surged, while daily LNG freight rates have jumped by more than 40%, reflecting mounting disruption across Gulf shipping routes.2 The Strait also accommodates a significant share of global fertiliser shipments, exposing risks for food supply both regionally and internationally.3

The transmission into the macroeconomy is equally direct.

Higher energy prices feed into inflation. Oil prices have risen sharply, increasing production and transport costs across sectors.4

As existing food stocks diminish, food prices are likely to rise, amplifying inflationary pressures.

"Vessels are not moving through the Strait of Hormuz, raising fertilizer costs. The delay will push food prices up later in the year."

– Máximo Torero, Chief Economist, FAO.3

This leaves central banks facing a core dilemma: stagflation, where growth slows even as inflation rises, complicating policy decisions.

The IMF has warned that sustained energy shocks could push global growth towards 2%, close to recession territory, while simultaneously increasing inflation.5

This is a classic supply shock. But more importantly, it exposes something deeper.

The Fragility of Hyper-Globalisation

Globalisation was built on efficiency.

Over the last 30 years, firms optimised supply chains for cost, relying on just-in-time production, minimal inventories, and highly concentrated shipping routes.

Around 80 to 90% of global trade by volume moves by sea, much of it through a small number of key chokepoints such as the Strait of Hormuz, the Suez Canal and the Panama Canal.

This creates a structural vulnerability. Global trade depends on a handful of narrow, politically exposed corridors.

When one fails, the system does not adjust smoothly. It breaks.

The result is what we are now seeing:

Efficiency has created fragility.

Regional Exposure: The Gulf at the Centre

Nowhere are the economic implications more immediate than in the Gulf.

For economies such as the UAE and Saudi Arabia, the Strait of Hormuz is not just a trade route but a core channel for exports, fiscal revenues and economic stability.

While higher oil prices provide a short term boost to revenues, the inability to reliably export crude creates significant constraints. In some cases, exporters struggle to get supply to market at all.6

For the Gulf Cooperation Council more broadly, the disruption introduces a key risk: reliability.

If buyers begin to question the security of supply, it accelerates efforts to diversify energy sourcing and shipping routes. Over time, this weakens the strategic advantage of Gulf exporters.

A larger concern is that higher import costs drive domestic inflation, particularly given the region’s reliance on food imports, while volatility in oil revenues complicates fiscal planning.

This creates a paradox: higher prices, but greater uncertainty.

For the Gulf, the issue is not just price. It is control over access to global markets.

From Efficiency to Resilience

The more important shift is behavioural.

Firms are moving away from cost optimisation towards risk management.

This includes:

These changes come at a cost.

Longer shipping routes increase fuel usage. Redundant supply chains reduce economies of scale. Political alignment begins to shape trade decisions.

The result is structurally higher costs across the global economy.

A system built over decades for maximum efficiency is now being redesigned for resilience.

Is Deglobalisation Actually Happening?

At the start of 2026, many economists questioned whether Donald Trump’s economic policies and the reshaping of the global order could drive deglobalisation. Rising tensions across key trade routes are now bringing those concerns back into focus.

Global trade is not collapsing. But it is changing.

Trade volumes remain high, but growth is slowing. UNCTAD now expects global trade growth to fall towards 1.5 to 2.5% under sustained disruption.7

At the same time, there is increasing evidence of regionalisation:

As the IMF has warned, the world economy is fragmenting into geopolitical blocs, with important implications for trade, growth and stability.8

This is not deglobalisation in the traditional sense.

It is fragmentation.

The global economy is shifting from a single integrated system towards multiple regional systems shaped by geopolitics as much as economics.

Why This Matters

The disruption in the Strait of Hormuz is not just a short term shock. It is a stress test.

It reveals how dependent global trade is on fragile infrastructure and how quickly the system can come under pressure.

The implications are structural:

Globalisation is not ending.

But the model that defined the past thirty years, fast, cheap and frictionless trade, is being replaced.

What emerges is slower, more fragmented and more uncertain.

Footnotes

  1. Reuters – Shipping traffic through Hormuz largely halted (opens in a new tab) ↩

  2. Reuters – Oil shipping costs surge amid Iran tensions (opens in a new tab) ↩

  3. Al Jazeera – FAO warns of global food crisis risk (opens in a new tab) ↩ ↩2

  4. Al Jazeera – Economic impact of Iran conflict (opens in a new tab) ↩

  5. Reuters – IMF warns oil shocks raise inflation and lower growth (opens in a new tab) ↩

  6. Reuters – Gulf exporters face disruption from Iran conflict (opens in a new tab) ↩

  7. UNCTAD – Hormuz disruption deepens global economic strain (opens in a new tab) ↩

  8. IMF – Geoeconomic Fragmentation and the Future of Multilateralism (opens in a new tab) ↩