Chi Wei Wang was an Institute of Economic Affairs Intern through Cambridge Global Connect
When Russia launched a full-scale invasion of Ukraine in early 2022, closing its airspace to western airlines, citizens erupted with discussions over the war itself, failing to consider the economic issues behind. No one labelled its economic impacts as an inescapable constraint on consumers; that, however, is exactly what it was, and today, the world is still paying the price. But the Russian airspace closure is not an isolated case. This was followed by many similar events, from Yemeni Houthi missiles targeting shipping routes in the Red Sea, to the recent Iranian blockade on the Strait of Hormuz, swallowing up more than a fifth of the world’s oil supply. It is thus easy to determine that geopolitical conflicts have emerged as the world’s most insidious cost, while being the least acknowledged, impacting not just governments, but mainly the everyday consumers in the global economy.
Consider the journey from Helsinki to Tokyo. Before Moscow’s reciprocal airspace ban in late February 2022, Finnair’s flight would last nine hours. Today, the same journey lasts more than thirteen. These additional four hours are not just a delay in arrival time, it means more than 4,000 extra gallons of jet fuel per flight, longer crew hours, fewer flight rotations each day, and most importantly, these additional costs do not simply vanish into thin air. Airlines do not absorb the impact of these costs either – they are brutally passed on to the consumers.
Finland is not the only one affected in the market today. The Heathrow based Virgin Atlantic, responds more drastically, terminating its direct flights to Shanghai in October 2024, after 25 years of service. An anonymous spokesperson from the carrier also cited ‘significant challenges and complexities’ stemming from Russian airspace restrictions as the key reason. The contrast between its main competitor on the same route is palpable. China Eastern delivers in ten hours, Virgin Atlantic in fourteen, at higher prices and higher fuel costs. Same route, same passengers, same destination. One thriving, the other extinct.
Germany’s flag carrier, Lufthansa, has also dropped its Shanghai routes by 60%, as mandatory airspace detours have created another five hours of flight times and have driven operating costs up by 40%. Lufthansa Group’s CEO Carsten Spohr himself warned, “If you want a level playing field, we need to ensure any airline landing in Europe avoids Russian airspace. Until that happens, there will be enormous advantages to Chinese carriers.” And his claims are justified. Chinese airlines currently dominate 84% of the China-Europe market, in comparison to 60% in 2019, while European carriers dropped to just 16%. If these trends continue, Chinese airlines will soon monopolise the market.
If you believed geopolitical conflict can only disrupt you at 35,000 feet in a flying metal tube, you are wrong. The Red Sea, the waterway bridging Europe, Asia and Africa, is one of the most important shipping corridors in the world, where more than 15% of global maritime trade passes through. But the Yemeni Houthi attacks on the Red Sea in November 2023, have resulted in a nearly impenetrable passage, where cargo ships passing through the Suez Canal have dropped
by 90% within the first three months. The alternative for trade between Europe and Asia/Oceania would involve rerouting around the Cape of Good Hope in South Africa, and would mean an extra £800,000 in fuel costs alone for each vessel.
Consequently, freight rates have also surged, where freight rates between Shanghai and Rotterdam have risen by 80%, Egypt’s Suez Canal has lost a staggering £5.5 billion in a year. However, Egypt is not the only one paying the price. All goods travelling by sea, such as electronics, clothing, accessories and everyday appliances, arrive more expensive. Shipping companies like Evergreen are unlikely to suffer and absorb these costs. In fact, their net profit has tripled to £2.5 billion in 2024 as Red Sea disruptions became the impetus for them to exponentially increase freight fares.
Close by, right at the mouth of the Persian Gulf, a similar closure has caused a global shortage that appears to be a far graver threat. Twenty million barrels of oil passing through the strait each day, produced by our global oil powerhouses ‘the Gulf producers’, ceased overnight on the 4th of March 2026 by Iranian military forces. Its effects were immediate. Brent Crude oil skyrocketed past £95 per barrel, where the International Energy Agency commented it as the largest supply disruption in the history of the global oil market.
Oil is not the only victim. The Strait of Hormuz also carries a fifth of the world’s liquefied natural gas (LNG), primarily sourced from Qatar, where the gas market is simultaneously being damaged. Prices for consumers then quickly pile on top of one another – electricity, heating and utility prices surge up to 75%. And once again, energy companies like Octopus Energy are unlikely to absorb these wholesale costs. In the United Kingdom, household energy bills are tightly connected to gas prices through the energy price cap. This results in typical increases in gas costs that are passed down to consumers through higher electricity and heating bills.
The hidden financial burdens caused by conflicts will continue to rise until Western governments start diplomatically addressing the impacts of geopolitical tension on supply chains, instead of aggravating the situation. This would avoid sudden economic collapses the moment Yemeni militants get their hands on a missile. Each of the three cases explains it all. A geopolitical decision can be made on the other side of the world – in Moscow, in Sanaa or in Tehran. But soon, everyday consumers are the ones paying for these higher fares, higher prices and higher bills. Nobody will send the bill, but we are already paying it.