Unit 2: Geopolitical Conflicts and Trade Disruptions
Geopolitical Conflicts and Trade Disruptions
Geopolitical conflicts significantly affect global trade flows. Countries use trade as a strategic tool to advance political goals, and conflicts often disrupt international markets.
Strategic Use of Trade Restrictions
Nation-states often impose trade restrictions to influence other countries or protect their own interests.
| Type of Restriction | Meaning | Example |
|---|---|---|
| Sanctions | Economic penalties to pressure a country politically | USA & EU sanctions on Russia over Ukraine conflict |
| Embargoes | Complete ban on trade with a nation | US embargo on Cuba for decades |
| Tariffs | Taxes on imported goods to protect domestic industries or retaliate | USA-China trade war tariffs on electronics & steel |
Key Idea: Trade restrictions are a non-military tool to exert geopolitical influence.
Conflicts and Wars Impacting Trade Flows
Conflicts and wars disrupt trade by blocking routes, creating uncertainty, and damaging infrastructure.
Examples:
-
Russia-Ukraine War (2022–Present):Disrupted grain exports from Ukraine → global food prices increased. Energy trade affected → Europe seeking alternatives to Russian gas.
-
Israel-Palestine Conflict: Regional instability disrupts trade routes and affects imports/exports in surrounding countries.
Geopolitical conflicts increase risk and cost for international trade.
Key Effects on Global Trade
- Supply Chain Disruption: Raw materials, energy, and goods may not reach markets on time.
- Price Volatility: Scarcity leads to higher commodity prices.
- Shift in Trade Alliances: Countries seek alternative partners or routes.
- Investment Risks: Foreign investors hesitate to invest in conflict zones.
Summary Table
| Factor | Impact on Trade | Example |
|---|---|---|
| Sanctions/Embargoes/Tariffs | Restrict trade, increase costs | US sanctions on Russia |
| War/Conflict | Disrupts supply chains, raises risk | Russia-Ukraine war |
| Political Instability | Shifts trade routes & alliances | Middle East conflicts |
Disruption of Global Supply Chains due to Political Instability
Global supply chains are highly sensitive to geopolitical events and political instability. Conflicts, territorial disputes, and control over strategic resources can disrupt trade, increase costs, and impact the global economy.
Control Over Critical Raw Materials
Certain raw materials are strategically important and their control affects global trade:
| Resource | Importance | Example |
|---|---|---|
| Oil & Gas | Energy supply for industries & transport | Middle East conflicts affect oil prices globally |
| Rare Earth Elements | Electronics, defense, and high-tech manufacturing | China controls majority of rare earth exports |
| Metals & Minerals | Key for infrastructure & industrial production | Russia exports nickel, palladium, and aluminum |
Key Idea: Nations controlling critical materials can influence global trade and bargaining power.
Political Instability and Supply Chain Disruption
- Wars, civil unrest, or sanctions can block trade routes.
- Transportation delays, insurance costs, and logistics issues increase.
- Companies often diversify suppliers to mitigate risks.
Examples:
- Russia-Ukraine War: Disrupted grain and energy exports → global price hikes.
- Middle East tensions: Oil exports threatened → energy security concerns worldwide.
Case Studies
Certain chokepoints are crucial for global trade. Instability here can halt supply chains worldwide:
| Location | Importance | Recent Impact / Updates |
|---|---|---|
| Strait of Hormuz | ~20% of global oil passes through | Iran-US tensions threaten oil shipments; insurance costs rise |
| Suez Canal | Connects Europe & Asia; 12% of world trade | 2021 Ever Given blockage caused $9–10B/day trade disruption |
| South China Sea | Vital for maritime trade & fishing; ~30% of global shipping | Territorial disputes with China risk shipping routes; military presence affects trade security |
Tip: Supply chain disruption is not only about transportation but also resource availability and geopolitical risks.
Latest Updates
- Strait of Hormuz: Increased naval patrols to prevent blockade risks.
- Suez Canal: Digital tracking and larger vessels management to reduce blockage incidents.
- South China Sea: Ongoing disputes between China, ASEAN countries, and the US; potential threat to trade routes.
- Global companies are diversifying suppliers and ports to reduce dependency on single points of failure.
Summary Table
| Risk Factor | Impact on Trade | Example |
|---|---|---|
| Political instability | Delays, higher costs, uncertainty | Russia-Ukraine war |
| Control over raw materials | Bargaining power, price volatility | China – rare earth metals |
| Strategic trade routes | Global trade disruption | Suez Canal, Strait of Hormuz, South China Sea |
Exam Tip
- Always connect political instability → supply chain disruption → global economic impact.
- Use real-life examples and latest updates for high marks.
- Highlight critical raw materials to show understanding of strategic trade importance.
- Always mention real-life examples (Russia-Ukraine, Israel-Palestine).
- Highlight cause → effect for trade disruption.
- Use tables or bullet points for clarity.