Strait of Hormuz disruptions lead to worst threat to global trade in 80 years: WTO chief

Global trade is grappling with its most significant disruption in eight decades due to supply chain bottlenecks in the Strait of Hormuz, according to the World Trade Organisation (WTO) chief, Ngozi Okonjo-Iweala. Speaking at the WTO's Public Forum in Geneva, Okonjo-Iweala highlighted the ongoing Middle East conflict as a major challenge for the organisation's 166 member countries.

Despite a robust global trade growth of 4.6 percent this year, 72 percent of all commerce still operates under WTO rules. The initial forecast for overall goods trade growth for the year is 1.9 percent, but the first-quarter growth of 3.2 percent exceeded expectations.

Okonjo-Iweala attributed the Hormuz disruptions to the gravest threat to trade in eight decades, warning of potential threats to food security. She noted that a significant portion of trade momentum was driven by the surge in artificial intelligence trade, fueled by low- or zero-tariff agreements covering $3 trillion in semiconductor and chip shipments. However, she expressed concerns about the sustainability of this trend, as economic benefits are mainly concentrated in North America and East Asia.

Temporary national reserves have shielded markets from the impacts of Hormuz disruptions so far, but prolonged blockades will inevitably lead to higher agricultural costs. Current crude oil prices have exceeded the threshold that could reduce overall trade growth by 0.5 points, as per the WTO's earlier estimates. Maritime shippers have maintained trade volumes by rerouting vessels via alternative routes, but these lengthy detours are adding steep premiums, raising questions about the long-term stability of the current supply chain.

Governments worldwide are formulating contingency plans to safeguard their economies from future chokepoint failures. The combination of supply chain instability and rapid technological shifts has sparked discussions within the WTO about overhauling global trade rules for the century. Okonjo-Iweala emphasized the importance of comprehensive institutional reform for equitable global development, noting that the current WTO framework has frequently failed developing nations.

She encouraged developing countries to contribute to drafting modernized policies to seize economic opportunities, as the proposed reforms aim to address failing institutional mechanisms and prevent these countries from being left behind.

A recent WTO report, unveiled during the Public Forum, estimated that a collapse in multilateral cooperation and failure to modernize regulations could eliminate up to 10 percent of potential global economic growth by 2050.