The world’s most important trade route?

Tensions between competing interests in the South China Sea have reignited debate over the future of trade in the region.

The Strait of Malacca, which runs between Indonesia, Malaysia and Singapore, has long been a major gateway for trade to and from Asia, and is once again rapidly rising in importance. Already the world’s second-busiest waterway it has been in continuous use since antiquity, with Roman, Greek, Chinese and Indian traders all taking advantage of this natural channel. Its strategic importance has also made it a source of international friction from the 15th century to the modern day. The opening of the Suez Canal in 1869 only increased its significance as the Strait became a key link between the Pacific and Indian Oceans, reducing the distance between Europe and the Far East by a third.

More recently it has served as the main transit route supplying vital commodities to fuel the fast-growing economies of Asia and beyond. Of the 87 million barrels of oil produced per day in 2011, approximately 15.2 million passed through the Strait of Malacca, the shortest sea route between African and Persian Gulf suppliers and Asian markets. This is some 19 times the amount that passed through the Panama Canal and four times more than the volume through the Suez Canal over the same period.

According to estimates from the United Nations Conference on Trade and Development (UNCTAD) Review of Maritime Transport 2011, almost half of the world’s total annual seaborne trade tonnage passed through the Strait of Malacca and the nearby Straits of Sunda and Lombok in 2010. As the region’s economies continue to expand so too will Malacca’s economic importance both to Asia and the wider global economy.

With such growth has come greater attention, not all of which has been welcome. Since October 2013, there have been three successful tanker hijackings involving significant oil theft in the Straits; the most recent took place on 22 April this year near Malaysia’s Pulau Kukup. The hijackers forced the crew to transfer their cargo into another ship before fleeing.

However, these incidences remain extremely rare and are unlikely to shift the Strait off its current trajectory. A combination of high economic growth rates produced in large part by energy-intensive industries should help maintain its geopolitical and economic significance. For example, while developed economies’ oil consumption has remained largely flat over the past decade, research by the World Bank shows that non-OECD countries are now driving global demand:

 

Indeed the main problem facing the region may actually be one of capacity. Over the past few years China has invested heavily in constructing new pipelines to transport gas and oil overland in order to ease congestion in the Strait, with a Myanmar-China gas pipeline completed in October last year.

As a natural choke point serving some of the world’s busiest ports, Malacca’s role in international trade looks secure. Prized and competed over for more than half a millennium, this crucial passage will undoubtedly remain a major focus of regional powers and the international community for the foreseeable future.

Author: Tomas Hirst is a commissioning editor at the World Economic Forum

Image: The skyline of Singapore’s central business district is seen at dusk as operations continue at a PSA International port terminal in Singapore September 25, 2013. REUTERS/Edgar Su