MURMANSK, May 2. /TASS/. The geopolitical situation in the Middle East and the increase in military, transport and economic risks for cargo shipments via the Suez Canal may turn the Northern Sea Route (NSR) into a priority logistics channel to bring goods from Europe to Asia with a multi-fold growth in cargo volumes expected in the future, Alexey Fadeyev, Doctor of Economics, deputy head of the public council at St. Petersburg’s Committee on Arctic Affairs, told TASS.
"The current geopolitical situation in the Middle East creates substantial military, economic and transport risks in the Red Sea, as well as in the eastern part of the Mediterranean waters, meaning from both sides of the Suez Canal. Previously the Northern Sea Route was only considered as an alternative to deliver cargoes from Asia to Europe, whereas now it may become a priority for global logistics," he said.
Cost of shipments
The Middle Eastern conflict directly influences global supply flows, the expert said. In particular, the cost of cargo shipments via the Suez Canal, which is the shortest existing route from China to Europe, had grown to almost $7,000 per container by March 2024, while before the start of the Middle Eastern conflict it was only $750.
"The bypassing route around Africa through the Cape of Good Hope, which is actively used as an alternative now, is both longer and more expensive on average 1.5 times, and in certain cases two times than the way via Suez," Fadeyev noted, adding that third countries, Egypt, for example, getting involved in the conflict threatens the safe use of the Suez Canal in general.
The market of hydrocarbons also depends on further development of the situation in the Middle East. Another ‘bottleneck’ of the global logistics and the market of liquefied natural gas is the Iran-controlled Strait of Hormuz. Around 25% of global LNG volume is delivered via it now. If Iran is drawn into the conflict and closes this route, gas prices will go up multi-fold, the expert said.
Northern Sea Route
"Despite Middle Eastern channels, the Northern Sea Route has no military or supply risks. Previously it was regarded that the NSR could bank on 10-15-percent traffic of the Suez Canal at the initial stage, whereas in light of the current geopolitical situation this figure may at least double," Fadeyev noted.
Regarding the cost of passing through the NSR it is hardly possible to calculate it now as it is not known what vessels with what volumes and types of cargoes will use the Arctic supply corridor. "Now it is safe to say that the way through the NSR from Asia to Europe is two times shorter than via the Suez Canal, which means that both fuel consumed and charter of vessels that is calculated on the basis of the number of days on the way, will be less. Moreover, as Russia’s ice-breaking fleet increases and the NSR infrastructure develops, the cost of passing will go down, which will attract even more cargo senders," the expert explained.
Development prospects and relevance of Northern Sea Route
China is the main foreign trade partner for around 140 countries registered by the UN. It is obviously necessary to ensure regular and safe supply of products from Asia to end users, which can be ensured particularly by the NSR, Fadeyev believes. "Despite existing macroeconomic and foreign political challenges, 36,254 mln tons of cargoes exceeding the targeted level by more than 250,000 tons were delivered via Arctic seas in 2023. Transit deliveries via the NSR also reached a new historical maximum of 2.129 mln tons of cargoes in 2023," the expert noted.
Data provided by Rosatom, the infrastructure operator of the NSR, also demonstrate the relevance of the northern corridor and the fact that cargo senders are interested in it. In 2023, a total of 1,218 permissions for movement of vessels in the NSR waters were issued (1,163 in 2022), including 115 provided to foreign companies (55 in 2022).