Global routes continue to narrow: aviation, shipping and geopolitical corridors

The past week has seen a further escalation of conflict across the Middle East. The human consequences are tragic and ongoing. But the situation is also beginning to reshape some of the global systems that keep trade and travel moving.

I’ve written before about geopolitical corridors (the narrow routes through which a disproportionate share of global activity flows). In fact I’ve an upcoming article in the next issue of The Actuary magazine on precisely this subject!

Earlier today I opened Flightradar24.com and noticed that the air corridor between Europe and Asia are even more constricted than when I wrote that article.

That corridor has been carrying more traffic since the Russian invasion of Ukraine removed Russian, Ukrainian and Belarusian airspace from the routing options for many Western airlines.

Now the latest Middle East escalation has narrowed things further. Airspace across a large part of the region has been closed or heavily restricted, including Iran, Iraq, Israel, Syria, Qatar, Bahrain, Kuwait, the United Arab Emirates, and parts of Saudi Arabia.

With much of the central Middle East effectively unavailable to commercial aviation, Europe–Asia flights are increasingly being funnelled through the corridor over Georgia and Azerbaijan.

And today there was another reminder of how exposed that corridor may be. Reports emerged of a drone strike inside Azerbaijan, which is one of the key airspace lanes currently carrying Europe–Asia traffic.

While the corridor itself isn’t new, it is now doing far more of the heavy lifting in global aviation. If that airspace also became closed, a flight from, say, Mumbai to London could be forced several hundred miles from its ideal great circle route, adding journey time and cost, complicating logistics for carriers and adding further to the environmental burden of air travel. This is now a very real possibility that insurers should be thinking about in their scenario analyses.

Meanwhile at sea

Looking today at VesselFinder.com shows a similar story in the shipping space.

There is a visible build-up of vessels around the entrance to the Gulf as the situation around the Strait of Hormuz deteriorates.

Recent reporting suggests:

• tanker traffic through the strait has dropped sharply as ships wait outside the Gulf
• several vessels have been damaged in attacks in the region
• war-risk insurance cover is tightening sharply, with some policies being withdrawn and premiums rising dramatically for ships entering the region

Given that roughly 20% of global oil and gas shipments normally pass through Hormuz, even temporary disruption has global implications.

Energy markets are already reacting. Oil prices have moved sharply higher in recent days as traders price in the risk of disruption to Gulf exports. Major producers including Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Qatar rely on the strait to export the majority of their oil and LNG. While countries typically stockpile oil to protect themselves against this sort of eventuality, a prolonged disruption could see those stocks start to run out, with potentially severe global consequences via inflationary and other shocks.

Why this matters for insurers

For insurers, the critical point is not just about aviation or shipping; it’s also about how global activity becomes concentrated into a small number of corridors when geopolitical constraints stack up.

When global systems rely on a small number of routes, disruption can transmit quickly across multiple insurance exposures, including:

• aviation and marine
• energy markets
• supply chains and business interruption
• political risk and trade credit

The key point is that exposure often arises indirectly, as the global system adapts to conflict rather than from the conflict itself.

The broader risk lesson

It occurred to me how risks are layering on top of each other.

Over time, separate geopolitical developments – sanctions, conflicts, airspace closures, maritime tensions gradually narrow the number of viable routes through which global activity can move.

The result isn’t necessarily immediate disruption. Instead, the system becomes more tightly squeezed, with more activity flowing through fewer corridors. That’s when relatively small developments eg a drone strike in Azerbaijan causing further airspace closure, can suddenly have much wider implications.

For insurers, this highlights the importance of looking beyond the immediate conflict zones themselves. The bigger exposures may arise in the corridors that global systems are forced to rely on when options narrow.

These routes can quickly become focal points of global risk, and therefore key inputs into insurers’ scenario analysis, stress testing and risk monitoring, which will need to be regularly revisited as the situation evolves.

This blog was also posted on LinkedIn here.