When the Strait of Hormuz closes, everyone turns their attention to the price of oil. Although understandable, the real issue is being overlooked. In fact, what is currently happening in the Persian Gulf is that the entire economic fabric is unravelling, and this time it doesn’t look like a temporary blip. Could Saudi Arabia emerge as the ultimate winner? When it comes to the Strait of Hormuz being blocked, oil prices and energy crisis are the first things that spring to mind. However, the real upheaval lies elsewhere.
The current conflict demonstrates, first and foremost, that a major trade route can be rendered unusable almost overnight. When one route is closed, it is not always possible to simply choose another one. Sometimes, the overall organisation of trade must be completely reconsidered from ports and overland routes to warehouses, customs and delivery timelines. During a period of conventional disruption, companies usually manage to ‘improvise’. But such adaptation relies on a minimum level of visibility. However, today’s crisis is not affording them enough time to make even minor adjustments. Stopgap solutions designed for short-term or localised crises are simply inadequate when uncertainty becomes the norm. The challenge is no longer simply to weather the storm, but to radically rethink trade routes.
As a result of these new routes in the Persian Gulf, who will the winners and losers be? No port is completely free from risk. The Port of Salalah in Oman is a good example. Located just outside the Strait of Hormuz, it could be considered as a fallback for ships waiting in the Gulf of Oman. However, Iranian attacks in late March demonstrated that even a port deemed ‘safe’ can become a target. The blockade of the Strait of Hormuz is certainly disrupting economic activity. As a result, companies are not only looking for the fastest or cheapest route, but also the most sustainable one. Solutions that may be effective for a few days can quickly become untenable. Companies must, therefore, constantly adapt to this situation of persistent instability.
In the current context, Saudi Arabia has emerged as a key player. For several years now, the Kingdom has sought to become a major logistics hub linking Asia, Europe and Africa. This ambition forms the core of its national transport and logistics strategy and its roadmap entitled Vision 2030. Under normal circumstances, a project of this kind is a long-term undertaking. However, in times of war, it assumes immediate relevance. If the Persian Gulf becomes too risky, the objective is to be able to route more traffic via the Red Sea and to then transport it further inland across the peninsula by road, via logistics hubs, and eventually, in the future, by rail. As such, the €7 billion Saudi Landbridge rail project, which is set to link the Port of Jeddah (in the west) to the Port of Dammam (in the east) via Riyadh, a total distance of some1,500 kilometres, has now taken on greater importance.
Given that such infrastructures cannot be built overnight, private operators have already rolled out interim solutions. The CMA CGM Group is using a bonded land bridge from Jeddah, followed by road transportation to several countries in the Persian Gulf. MSC is unloading at the nearest secure port and applying a surcharge of $800 (€693.98) per container. These two-container shipping and logistics companies are proof that reorganisation is already underway. And therein lies the real challenge.
The country that will thrive tomorrow will not simply be the one with good port facilities, but rather the one with the ability to rapidly link its ports, roads, warehouses, and procedures. In a crisis such as the closure of the Strait of Hormuz, efficient logistics depend less on a single aspect of infrastructure than on the ability to successfully bring together an entire system. The importance of Saudi Arabia’s infrastructure becomes clear when viewed in this context. The Landbridge project linking the Red Sea to the Persian Gulf certainly plays apart in this, but the Kingdom’s strength stems primarily from its size, its location and its overland infrastructure. The corridor between Jeddah and Dammam, laid out along Highway40 and connected to Highway 95, makes for a highly efficient logistics network. While several countries in the Persian Gulf are seeing their maritime access become increasingly vulnerable, this land-based route is becoming strategic asset and could position Saudi Arabia as a key regional hub. This shift towards new routes necessitates rapid technological modernisation.
Managing multimodal corridors that combine alternative maritime routes and long-distance overland transport, such as between Jeddah and Riyadh, requires appropriate logistical facilities and resources. This includes transhipment hubs, road networks capable of coping with a high-volume of HGV traffic, cold stores, dry storage areas, and refuelling stations. Not all Saudi players are ready to deliver on this, despite the efforts associated with Vision 2030. Digitalisation is becoming central to the sector, with paperless customs procedures, real-time tracking of cargo flows, the use of Artificial Intelligence and the Internet of Things, as well as close coordination between ports, carriers, and warehouses spread across several countries. All of this is developing at a rapid pace. The pressure to adapt is accelerating innovation by shortening decision-making times and fostering collaboration. Saudi players investing in such resources will not simply emerge from the crisis with a sense of relief at having survived; rather, they will emerge stronger, structurally more competitive, equipped with logistical expertise that is rare in an arid, desert environment, and with infrastructures designed for volumes that their rivals simply cannot handle. The conflict is leading to a redistribution of competitive advantage in the region. Saudi Arabia is no longer relying solely on its oil and gas reserves and could become the architect of a logistics network for which it controls the key hubs. This transformation was not planned. It is the direct result of a crisis that has forced and configuration that is too far-reaching to be reversed. This restructuring remains fragile, nonetheless. The more the Kingdom becomes a strategic corridor, the more its roads, ports and hubs become targets.
The war is enhancing Saudi Arabia’s importance as a central hub while simultaneously increasing its vulnerability. In a context where even Oman, Iran’s long-standing ally, has not been spared, a return to pre-crisis arrangements seems unlikely. The challenge now is to identify logistics corridors capable of remaining open long enough to become sustainable.
(The views expressed are personal)
This article is authored by Benyamin Shajari, professor, Supply Chain Management, Excelia Business School, France.
