What if the Strait of Malacca is closed?

It is one of the funny things in financial markets that every year, we all suddenly become experts in something new. In 2007/08, we became experts in subprime mortgages; in 2011/12, experts in the arcane financing of the Eurozone; in 2020, we all became epidemiologists; and in 2026, we all suddenly became experts in the goods transported through the Strait of Hormuz. And as part of that, people started to worry about what might happen if other maritime routes were closed as well.

Well, we no longer have to worry, because a new paper has provided a cheat sheet on the trade and growth effects of five crucial scenarios:

• A closure of the Panama Canal
• A closure of the Suez Canal
• A closure of the Strait of Malacca
• The opening of the Thai Canal (Kra Canal), which would reduce shipping times between Southeast Asia and Europe by cutting through the thin southern part of Thailand.
• The opening of the Northwest Passage is due to climate change, leading to lower ice coverage. This, in turn, could enable trade between the Atlantic and Pacific Oceans via the Arctic Ocean to the north of Canada.

You can find detailed tables of the estimated effects of each of these scenarios in the note, but let me show you five charts here with the GDP effect on the most important countries for each case. I have sorted the four charts from the largest negative impact to the largest positive impact.

Estimated GDP impact of a closure of the Panama Canal

Estimated GDP impact of a closure of the Suez Canal

Estimated GDP impact of a closure of the Strait of Malacca

Estimated GDP impact of an opening of the Northwest Passage

Estimated GDP impact of the opening of the Thai Canal