Gulf War III is a Warning About the Effects of a ‘Taiwan Straits War I’

The economic shock from what Niall Fergusson calls ‘Gulf War III’ is largely being transmitted through the medium of the global shipping industry. The proportion of the world’s fossil fuel sourced from the Persian Gulf is only part of the reason this war risks triggering a global recession. A less examined reason is the critical importance of major Asian economies (China, Japan, South Korea, Taiwan) to global commerce, combined with their vulnerability to the breakdown in the international shipping network that carries their fuel but also the parts and products to assembly and markets. It is important to understand this fragility and consider ways to mitigate it in order to prepare for a similar crisis that could spread out from a possible conflict over Taiwan.

The economies of China, Japan, South Korea and Taiwan account for over a quarter of nominal global GDP, and much more than that if measured in terms of purchasing power parity. All of them rely on maritime trade for a large portion of their energy supply and the transportation of industrial inputs and products. Their economies are linked to each other and those of nations across the region and the world by a dense and complicated supply chain network. If something happens to cause that network to break down or shipping to stop, the effect on the global economy would be comparable to what is taking place as a consequence of Gulf War III.

An attempt by China to take control of Taiwan by force would impose a zone of danger across the world’s most important shipping lanes. Uncertainty about the probability of other countries like America and Japan entering the conflict would prompt insurers to consider the worst-case scenario, where the area listed for war-risk extends some distance into the Pacific, south towards Australia and potentially into the Indian Ocean. If insurance was on offer, it would be expensively priced. In the short term, when uncertainty is at its height, there is no guarantee that insurance would be available at all.

Until recently, war games simulating such a crisis tended to assume that this problem could be addressed by providing navy escorts to enable commercial ships to sail on through a crisis. However, President Trump’s offer on 3 March 2026 to provide escort and insurance has yet to make much impact on the willingness of the shipping community to carry on sailing.

Shipping is a global industry that functions efficiently and reliably within a multi-stakeholder ecosystem consisting of owners, crews, representative bodies, banks (most ships are mortgaged), flag state jurisdictions, insurers, re-insurers, underwriters, ports and sundry service providers (including maritime private security companies). The incentives that inform its decision-making are balanced across jurisdictions and relationships with a range of customers that is mostly blind to political or ideological considerations, such that it is not beholden to any single higher authority. This means that although shipping is not ‘sovereign’ in a formal sense, in terms of its behaviour, it has some of the attributes of a sovereign entity.

The Flow of Fossil Fuels

Although the importance of fossil energy for the global economy has a multiplying effect on the impact the current war has on shipping from the Gulf, the quantity of trade affected by an interruption of shipping in East Asia would be far greater. 60% of the world’s maritime trade passes through Asia. Although Greece commands the largest fleet by capacity, Asia is home to more than half of the world's commercial fleet. According to UNCTAD, East Asia dominates global maritime trade, with the region accounting for over 40% of all global maritime cargo handling. China, Japan and the Republic of Korea together produce about 95% of global ship building output. If Asian shipping freezes up, the global economy catches a severe cold.

Representatives of the government of the People’s Republic of China (PRC) insist that ‘The Taiwan question is purely China’s internal affair. It concerns China’s sovereignty and territorial integrity, which brooks no external interference.’ As in the case last November, when Japan’s Prime Minister Takaichi Sanae pointed out that a crisis involving Taiwan would have grave implications for Japan’s security, the PRC responded sharply. Even months later, China’s foreign minister was trying to persuade the audience of the Munich Security Conference that ‘the Japanese leader's erroneous remarks on the Taiwan question expose Japan's unabated ambition to invade and colonise Taiwan and persistent intention to revive militarism.’

Pretending that a Taiwan crisis would be anyone’s ‘internal matter’ is as absurd and irresponsible as claiming the current Gulf conflict is of concern to the direct belligerents alone. Only by thinking though the likely effects on economic security for the region and the wider world can the scale of the problem be appreciated, and proportionate measures put in place to prevent it, to deter it from happening, or to mitigate its effects. China has no right to shut down discussion on a question of international economic security.

The current crisis should serve as a reminder of the extent to which the world relies on the global shipping ecosystem. Based on the response so far, those charged with international security do not understand the industry well enough to know how to protect it in the context of armed conflict. There is still time before a second perhaps more catastrophic case breaks out in East Asia. The solution lies in collective resilience based on better mutual understanding between the private sector maritime ecosystem and public sector security professionals.

© RUSI, 2026.

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