Global trade is facing its worst disruption in 80 years as supply chain bottlenecks in the Strait of Hormuz threaten global food and fertiliser prices, the World Trade Organization's (WTO) director-general warned.
Ngozi Okonjo-Iweala, speaking on the sidelines of the WTO’s Public Forum in Geneva, told Anadolu on Friday that the global trading system remains resilient, but the ongoing Middle East conflict presents a major test for the organisation’s 166 member countries.
She noted that global trade in goods grew by an unexpectedly strong 4.6 percent this year despite geopolitical pressures, while 72 percent of all global commerce continued to operate under WTO rules.
The initial projection for overall goods trade growth was 1.9 percent for the entire year, but the first-quarter growth rate of 3.2 percent outpaced expectations.
Okonjo-Iweala stated that a significant portion of the momentum was driven by the surging trade in artificial intelligence, which it turn was driven by low- or zero-tariff agreements covering $3 trillion in global semiconductor and chip shipments.
She urged caution over the sustainability of the trend, while warning that the economic benefits of this booming trade remain concentrated in North America and East Asia, raising concerns about global market inclusivity.
Higher agricultural costs
Okonjo-Iweala said national reserves temporarily shielded markets from the shocks that the Strait of Hormuz disruptions have caused thus far, but prolonged blockades in the vital waterway will inevitably lead to higher agricultural costs.
The WTO’s previous estimates showed that crude oil prices reaching $90-a-barrel could drive down overall trade growth by 0.5 points, while current crude oil prices have exceeded that threshold.
Maritime shippers maintained trade volume by rerouting vessels via alternative routes, but these lengthy detours are adding steep premiums, calling into question the long-term stability of the current supply chain, Okonjo-Iweala warned.
Overhaul for global trade rules
Governments around the world are drafting contingency plans to protect their economies from future chokepoint failures, while the combination of supply chain instability and rapid shifts in technology has furthered internal WTO talks over the need to overhaul global trade rules for this century.
She noted that comprehensive institutional reform is key to equitable global development, and that the current framework of the WTO has frequently failed developing nations.
Okonjo-Iweala urged developing countries to participate in drafting modernised policies to ensure they can also seize economic opportunities, while the proposed reforms would target failing institutional mechanisms and help prevent these countries from being left behind.
A recent WTO report unveiled as part of its Public Forum estimated that a collapse in multilateral cooperation and a failure to modernise regulations could wipe out up to 10 percent of potential global economic growth by 2050.
