The Bab al-Mandab strait, though geographically distant from Karachi, holds significant implications for Pakistan’s economy should it face a complete closure. The blockade could lead to increased shipping expenses and delays in exports, potentially jeopardizing jobs.
Current Maritime Tensions
Already, the Strait of Hormuz is experiencing significant strain, with shipping movements heavily restricted. The Houthi forces have intensified their attacks on shipping lanes and have threatened a comprehensive blockade of Bab al-Mandab.
Last week, the Houthis took control over Yemen’s Red Sea coast and the Bab al-Mandab Strait, announcing a blockade targeting Riyadh. Although currently limited to Saudi vessels, there is a looming fear of a broader closure.
For Pakistan, the implications of a potential closure are not merely speculative. The critical question now is the economic impact on the nation if this vital maritime passage between the Red Sea and the Indian Ocean were to close completely.
Impact on Trade and Shipping
The immediate effect of Bab al-Mandab’s closure would disrupt shipments that rely on the Red Sea and the Suez Canal, especially those heading to Europe. Shipping routes would need to be redirected around the Cape of Good Hope, leading to extended journey times and higher freight costs. This shift would strain vessel capacity and container availability.
Globally, the stakes are high, with approximately 10% of all seaborne trade and a third of Europe’s imports traversing this corridor. Ships passing through the contested route would face increased risks, including high war-risk insurance premiums.
Choosing the safer diversion around the Cape of Good Hope could extend voyages by 10 to 18 days, significantly raising fuel and crew expenses. The Pakistan Ship’s Agents Association notes that the typical journey from Northern Europe to Karachi takes 18 to 22 days via Bab al-Mandab and the Suez Canal, while reaching the US East Coast from Karachi takes 25 to 30 days. The Cape route would further prolong these times, affecting delivery reliability and turnaround schedules.
Challenges for Pakistani Exporters
Pakistani exporters, particularly in the textile sector, fear losing European clients to alternative suppliers due to increased shipping costs and longer delivery times. The prolonged closure of Bab al-Mandab would raise shipment costs for importers and exporters, potentially prompting European buyers to seek other trading partners.
Textile exporters in Pakistan already face stiff competition from Bangladesh, Vietnam, and India in European and American markets. Extended lead times could disrupt just-in-time retail contracts, increase working capital tied up in transit goods, and expose exporters to penalties for late deliveries.
Such a scenario could widen Pakistan’s current account deficit, as costlier oil imports inflate the import bill, while expensive and delayed shipping reduces export earnings from the EU and US.
Rehan Hanif, President of the Karachi Chamber of Commerce and Industry, emphasized the need for proactive measures to maintain trade flow and safeguard competitiveness.
Fuel Supply Disruptions
The blockade affecting Saudi ships has significantly disrupted fuel supplies to Pakistan. Raja Wasim, Senior Vice Chairman of the Pakistan Petroleum Dealers Association, noted that crude oil supplies from Saudi Arabia’s Red Sea ports had ceased, impacting Pakistan’s refineries.
Previously, four to five vessels carrying refined oil products arrived weekly from the Persian Gulf, but these numbers have dwindled. The ongoing conflict has also hit Saudi Arabia’s East-West Pipeline, crucial for transporting crude from Dammam to Yanbu on the Red Sea, further disrupting oil supplies to Pakistan.
Wasim highlighted the noticeable impact, citing a Rs30 per litre increase in petrol prices over the past 10 days, due to both price hikes and supply shortages. He questioned Pakistan’s ability to afford alternatives, unlike Japan or China, which can purchase oil from American sources.
Strategic Responses and Future Planning
With limited strategic fuel reserves and a dependency on imported refined petroleum products, Pakistan’s economy is sensitive to every additional cost from Gulf freight or insurance, which ultimately affects consumer prices.
Sardar Tahir, President of the Islamabad Chamber of Commerce and Industry, advocates for diversifying energy sources, building strategic reserves, and mitigating price spikes from shipping disruptions. Enhancing port efficiency and bolstering domestic production of crucial inputs could reduce vulnerabilities.
Experts monitoring the situation warn that simultaneous disruptions at Bab al-Mandab and Hormuz could lead to a self-reinforcing shock with widespread regional effects. Dr. Qamar Cheema from the Sanober Institute suggests that Pakistan might play a crucial role in regional mediation efforts, similar to previous American negotiations with the Houthis in Oman.
Engagement in diplomatic talks is deemed essential for regional stability and Pakistan’s economic interests.
