Middle East Crisis Impact on Global Shipping Costs

This technical report analyzes the implications of the Israel-Hamas conflict on global shipping costs and inflation. Following the escalation of the conflict, particularly the Houthi attacks on Red Sea shipping, there has been a notable increase in maritime transit costs. The report outlines the current state of regional security and its effects on commercial shipping, indicating that while shipping costs have risen, the overall impact on global inflation may be limited. It discusses the potential for upward pressure on inflation due to increased freight rates, with estimates suggesting a possible 0.7% rise in headline consumer price index (CPI) if the increase in shipping costs persists. The report also contrasts the current situation with the pandemic's supply-chain disruptions, noting that while the current disruptions are significant, they are not as severe as those experienced during the pandemic. Additionally, it highlights the geopolitical risks that could affect central bank policies and monetary easing in the near term.