Middle East-China trade prospects remain robust despite Red Sea crisis

Al-Monitor Pro Members

Howard J. Shatz

Senior Economist, RAND Corporation 

Feb. 8, 2024

Disruptions to shipping through the Red Sea and Suez Canal are likely to have only modest effects on Chinese goods trade with most of the Middle East but could lead to significant costs for China’s global trade. China has relied on the route as the shortest path to supply Europe but also uses it to reach the United States and receives Russian oil imports via the Suez Canal. Focusing only on Middle Eastern trade partners, Turkey, Egypt and Israel are the only major partners that will be affected by the higher shipping costs that come from rerouting ships from the Red Sea route to travel around Africa’s Cape of Good Hope. Together, these accounted for an annual average of 17% of all goods trade between China and the Middle East from 2018 to 2022. China is likely to face additional costs through reduced use of the ports and other transit facilities in which it has been investing in Egypt and the Suez Canal area. These costs will likely be temporary, however, with shipping likely to return to the efficient Red Sea-Suez Canal route when Houthi attacks on shipping through the Bab al-Mandab gateway to the Red Sea cease.

Focusing strictly on China-Middle East goods trade, Chinese goods exports to the Middle East have grown in recent years, generally more rapidly than overall Chinese exports. In contrast, while China usually runs a goods trade deficit with the Middle East and relies on the Middle East more for imports than as an export market, China’s imports from the region are more volatile. In both cases, despite the efforts of the region to diversify, these trade patterns depend on oil prices and are likely to do so over the medium term. Exports also rely on the role of the Gulf countries as an entrepot for shipments to other destinations. With Chinese exports likely to keep rising, the level going to the Middle East should also increase. Notably, between 70% and 75% of China-Middle East trade is with the members of the Gulf Cooperation Council, Iraq and Iran, all unaffected by Red Sea shipping disruptions. Furthermore, the onward trade to Africa is unlikely to be affected directly by Red Sea shipping disruptions.