Shipping and geopolitical risk: Don’t forget about Korean Peninsula

COVID steered shipping markets in 2020-2022. Geopolitics has steered markets ever since — and future war effects on ocean trade could be even more extreme than they are today.

Russia’s invasion of Ukraine rerouted crude oil, refined products, LNG, coal and grain trades. The Israel-Hamas war spawned attacks by Houthi rebels on vessels in the Red Sea, which have rerouted container ships, LNG carriers, liquefied petroleum gas (LPG) ships and, to an growing extent, refined product tankers.

The Middle East war could grow into a regional conflict that affects tanker traffic through the Strait of Hormuz. Venezuela could invade Guyana, curbing a promising new source of crude exports. China could invade Taiwan, leading to an economically cataclysmic war between China and the U.S.

And then there’s North Korea, which is increasingly allied with Russia.

The consensus is that a North Korean attack on South Korea and/or Japan is very unlikely — but it’s a known threat, definitely not a “black swan.” North Korea has fired missiles over Japan and North Korea’s state media said last Tuesday that the country’s leader, Kim Jong Un, no longer seeks reunification with South Korea and wants to subjugate its neighbor, through nuclear war if necessary.

A war in the region would be highly material to ocean shipping. South Korea and Japan are major exporters of goods to the U.S., and 40% of the world’s shipbuilding production is in those two countries — with almost all of the other yard capacity in China.