Why the Red Sea disruptions will dominate the WTO meeting in Abu Dhabi

“You have to talk to each other. And that means there has to be compromise; no one side will get 100 per cent of what they want.”

So counselled Ngozi Okonjo-Iweala at the start of the World Trade Organisation’s biennial ministerial conference in June 2022. Ultimately, its 164 member nations needed an extra couple of days to reach a consensus, but it proved to be a successful pep talk by the former Nigerian finance minister, who took over as Director General of the WTO the year before the 12th Ministerial Conference (MC12). The agreements reached became known as the “Geneva Package” and included landmark rules on fisheries subsidies, responding to pandemics, food security and e-commerce tariffs.

Nearly two years later, and one month away from MC13 in Abu Dhabi, global trade has been severely disrupted – this time due to more than two dozen attacks on Red Sea shipping by Yemen’s Iran-backed Houthi rebels since November.

Shipping companies are sending their vessels away from the traditional route through the Suez Canal as a result, and this has meant delays to cargoes and ultimately rising costs. Such pressures will dampen sentiment and potentially trade activity.

Already the outlook for this year had been “highly uncertain and generally pessimistic” according to the UN Conference on Trade and Development. Now the prognosis is only worsening as tensions rise in the region and the Israel-Gaza war shows no sign of ending.

On Tuesday, the US military’s Central Command said it thwarted the latest – and largest to date – Houthi attack that included the firing of 18 one-way attack drones, two anti-ship cruise missiles and one anti-ship ballistic missile towards transiting merchant vessels. The US is leading the international response to stop the Houthis as well as working towards a solution in Gaza, but we should be prepared for a long, drawn-out process.

Loss of life has been the paramount concern during these past few months, and we now have an additional dimension to consider – the potential impact on livelihoods as a result of reduced trade flows. There will also need to be a collective response in order for them to be protected. These shorter-term risks will probably be included in the wider conversation about how trade can be enhanced for the future.

Right now, it appears as if global trade can be too easily held up and disrupted by single factors.

In the past decade, we have seen how a volcanic eruption in one region can have a far and wide impact on the movement of goods. The Covid-19 pandemic, for example, revealed our over-reliance on China as a source of key products. Climate change is wreaking havoc on agricultural systems. Combine all the possible scenarios for disruption and our systems appear very precarious and ill-fit for the purpose of fostering inclusive economic growth and improving quality of life and well-being.

Ms Okonjo-Iweala, for her part, has talked about the weaknesses of the current system of trade while at the same time defending globalisation and its role as a facilitator and enabler for these goals. “My answer is: yes, the system works. Yes, parts of it need to be fixed. We need to fix what needs fixing. We don't need to throw the baby out with the bathwater,” she has said. “The WTO has made things better for business.”

She has conceded that the organisation’s dispute settlement mechanism – currently non-functioning thanks to the US blocking the appointment of judges – does need fixing. Also, the rules on the digital sphere must be updated to reflect its rising influence.

She has spoken about a “better path forward” led by “re-globalisation: deeper, more deconcentrated markets, achieved by bringing more people and places from the margins of the global economy to the mainstream”. By doing so, she argues, there would be greater diversification and thus it would be harder to “weaponise interdependencies”.

Looking at what the Houthis are up to, it is tempting to conclude that it is easier than ever at the moment to weaponise them. So what can we do?

The reality has always been that geopolitics and trade are intertwined, but the end of the Cold War fuelled the idea that they can be separated. The WTO’s creation was seemingly this ideal made tangible.

Recent history has shown the notion that we can distance trade and politics to be little more than wishful thinking. This is partly because the idea was originally driven by a worldview derived from the perspective of the US and other industrialised nations.

This stance was never sustainable, and arguably its bias has made it even more difficult to remove geopolitics from the trade equation.

Other – non-western – perspectives count just as much in a global trade environment and they will find a way to be voiced, whether inside or outside existing multilateral institutions. The growth of the Brics grouping in recent years – which the UAE and Saudi Arabia have recently joined – demonstrates this.

Developed nations, however, still seem reluctant to truly share leadership roles with emerging economies. Until they compromise on this critical point, we will all continue to find geopolitical concerns harder to resolve and trade will always be at their mercy.