BANGKOK, Oct 15 (Reuters) - Shifting geopolitics and the wars in Ukraine and the Middle East will have a lasting impact on world trade flows as companies hedge their bets against future shocks, Ngozi Okonjo-Iweala, director general of the World Trade Organization, told Reuters on Thursday.
Trade had contracted sharply in the Middle East as a result of the Iran war, despite a series of workarounds, and would take some time to bounce back, Okonjo-Iweala said in an interview, adding that some of the shifts could become permanent. The WTO forecast a 17% drop in exports this year, with imports down about 15%.
Private sector experts were forecasting a rebound once the war ended and the Strait of Hormuz was open since it offered a cheaper route for trade, but repeated conflicts had underscored the need for diversification and contingency planning, and some of the alternative trade routes would likely endure, she said.
"We are finding that choke points and choke assets are things we have to think about for the world," Okonjo-Iweala said in an interview on the sidelines of the annual meetings of the International Monetary Fund and World Bank.
"I think some of these alternatives will stay because both countries and businesses want to hedge against eventualities."
She said she expected broader diversification efforts into different regions and countries to continue given the repeated shocks caused by wars and other trade disruptions, including a massive wave of tariffs imposed by US President Donald Trump.
"There's absolutely no doubt that supply chains have been reconfiguring," she said. Business leaders had proven creative in finding new trade routes, although they were more costly.
Some of those efforts would endure "because geopolitics makes it a sensible thing to do," she said.
OPPORTUNITY FOR INTRA-AFRICAN TRADE
Regional trade would also continue to expand, she said, noting that African countries, for instance, could boost growth and trade significantly by trading more within the continent.
"Africans trading among themselves can really create value, create jobs," she said, noting that intra-African trade now accounted for about 20% of African trade, while trade within the European Union accounted for about 60% of its trade.
Regional trade agreements were expected to continue to advance, although trade governed by WTO rules still accounted for nearly three-quarters of all trade.
The WTO last week upgraded its forecast for global merchandise trade growth, with demand for AI-related products helping to offset the impact of disruptions caused by the widening war in the Middle East. It said world merchandise trade volume growth was projected to reach 3.9% in 2026, up from 1.9% in the WTO's baseline forecast issued in March.
Okonjo-Iweala said the future remained uncertain given the ongoing conflicts, tariffs and concerns that the boom in AI would fizzle out or collapse.
"The impact of AI is masking the other tendencies in trade, which are not on the positive side," she said.
Reporting by Andrea Shalal; Editing by John Mair
