We should not trivialise the prospect of a widening conflict in the Middle East. Yet it would be equally naïve to ignore the operational consequences for rail freight. From energy pricing to shipping disruption, the impacts are already beginning to register. What feels abstract today can become painfully concrete tomorrow, especially in a system as tightly balanced as Britain’s modern logistics chain.

Energy shock travels fast

Before anyone in the cab of an electric locomotive feels too comfortable, consider the source. Oil shock means energy shock. It ripples through every generation mix, every tariff, and every contract. Prices rise across the board, often faster than operators can react, hedge or recover.

We are reminded from cradle to grave that everything in the modern economy depends on oil. From baby wipes to coffins, from plastics to packaging, hydrocarbons underpin production and distribution. Those goods, or the materials that make them, arrive on our shores before moving inland by rail and road. When oil markets tighten, the entire system feels the strain.

Shipping disruption is the hidden threat

Global shipping routes are the second front. The Trades, as the industry calls them, are already shifting under pressure. Ultra Large Container Vessels (those behemoths with twenty-thousand TEU on board) are being forced out of position, creating imbalances that cascade through port rotations and inland schedules. British port managers remain highly adept, masking much of the disruption for now, but the pressure is building.

Rest uneasy. The disruption will come as surely as fuel prices climb. Delays and diversions at sea translate directly into delays and diversions on land. Containers arrive late, or not at all, and the carefully choreographed dance between quay cranes, rail terminals and inland hubs begins to falter. The rhythm of the network is disturbed, and recovery is rarely immediate.

There is only so much strain the freight system can absorb. Britain benefits from a high degree of intermodal interoperability. Scheduled services connect ports to inland terminals with near-metronomic regularity. But “near” is doing a lot of work here. Even small perturbations can propagate quickly when margins for error are thin, and capacity is tightly allocated.

A just-in-time system under pressure

Britain’s logistics model compounds the problem. The country has a chronic shortage of modern storage. For years, we borrowed from the Japanese concept of Kanban and just-in-time supply. In practice, we adapted it with a distinctly British mentality. We make do, mend, and hope that timing remains perfect. That approach works until it does not. Unfortunately, Britain is not so adept at adopting Kaizen, that other Japanese technique of continual improvement.

The result is a system with minimal slack. Warehousing capacity, particularly A-grade, rail-connected space, is in short supply. There is no shortage of planning applications for new facilities, but delivery lags demand. Much of the existing stock will fall out of compliance or become uneconomic within a decade. Unfortunately, the need is immediate, not theoretical.

When ships fail to arrive just in time, Britain finds itself in a bind. Delayed shipping means delayed inventory. Without adequate storage, there is nowhere to buffer the disruption. Goods either pile up in the wrong place or fail to arrive where needed. Rail freight sits in the middle of this imbalance, expected to respond but constrained by infrastructure and capacity.

We muddle through until things go wrong. Right now, things are going wrong on a scale that could yet deepen. War in the Middle East may feel distant, but its consequences are already reaching the Midlands and beyond. Supply chains do not respect geography in the way we might like to imagine.

What happens next for rail freight

Predicting the next phase is a hazardous exercise. If you can do it accurately, you are probably already profiting handsomely. For the rest of us, the outlook is uncertain. Freight trains will continue to run. Operators have tools to manage short-term cost shocks, including fuel hedging, which can soften the immediate impact of rising diesel prices (and electricity, you smug overhead wire-types).

The greater risk lies not in the trains themselves, but in what they carry. Volumes are vulnerable to sudden swings. Intermodal services may continue to operate according to the timetable, but with fewer containers on each consist. Frequency could also come under pressure if demand weakens or becomes erratic. Operators dislike volatility, and this is volatility writ large.

There is also the broader economic context to consider. If commodity prices drive inflation higher and suppress consumer spending, the downstream effects will be significant. Warehousing schemes may stall. Projects that look viable today could remain on the drawing board. And without goods to store, the rationale for new logistics infrastructure begins to weaken.

Railways as barometer and bellwether

We often talk about freight in abstract terms, much like the railway itself. Tonnage, paths, capacity, utilisation. Yet the railway is more than a set of metrics. It is an industrial barometer, an economic bellwether, and a national lookout. Changes in flow patterns, volumes and commodity mixes tell us a great deal about the health of the wider economy.

In times of stress, that role becomes even more pronounced. The rail freight sector is both resilient and exposed. It can adapt to disruption, but it cannot escape it. What happens in distant oil fields and contested shipping lanes will, sooner or later, be reflected in train loads, terminal activity and balance sheets across the UK.

Let us hope that the coming months do not force the railway into an even more ominous role. For now, it remains a vital indicator of how well the system is coping. But if the shocks intensify, it may also sound a warning signal. That is one alarm the industry, and the country, would rather not have to hear.

Such a move is understandable in international politics, with China attempting to increase its influence sphere by helping states finance and construct critical infrastructure, which mostly concerns rail transport. One of the most recent examples in Europe is the construction of the Belgrade-Budapest railway line in Serbia, carried out with Chinese financing. In late 2022, Bojan Stanić, deputy director of the Strategic Analysis Sector at the Serbian Chamber of Commerce, proclaimed China a strategic partner of Serbia and said the Asian state had become the main investor in the Balkan country.

Regarding the rest of the globe, China has a strong presence in South America, Africa and the Middle East, let alone Central Asia. Argentina, for instance, has been going after China asking for railway investments, with governmental officials explaining that they aim to facilitate direct investments in Yuan so that Chinese cash flows will remain stable.

As for the Middle East, China played a key role in reviving the long problematic diplomatic relations between Iran and Saudi Arabia and advocates for the Chinese Yuan to become one of the main oil exchange and trade currencies. Many of China’s oil suppliers are already accepting payments in Yuan. Simultaneously, China backs Russia’s expansion in the region, namely Iran and the International North-South Transport Corridor.

Will the giant awake?

Some indications that the US at least started realising the role of rail infrastructure investments in international politics and trade came from the G7 summit of 2022, where the attending political leaders pledged to raise 600 billion US dollars (634,56 billion euros) over five years to finance needed infrastructure in developing countries. A year later, during the G7 Summit 2023, in Hiroshima, Japan, this pledge moved closer to implementation.

Specifically, during the latest G7 meeting, the US disclosed plans to finance the rail expansion of the Lobito Atlantic Railway Corridor in Africa, connecting the Lobito port in Angola with the Democratic Republic of Congo (DRC). The project’s financing will cost around 250 million US dollars and will be implemented by the US International Development Finance Corporation (DFC). This will be DFC’s first rail investment in Africa.

Before that, the US had entered talks with Saudi Arabia, the United Arab Emirates and India for a railway infrastructure project linking the Middle Eastern countries and extending to India via sea shipping lines. The shared US, Saudi, Emirati and Indian plans for such a rail-sea corridor could put pressure on China and Russia by underlying that the US presence in the region is strong and contributes to investments and by providing alternatives to the Chinese and Russian transport corridor monopoly. Even though this plan is not official, the fact that it’s intensely discussed in bilateral and multilateral diplomatic briefings indicates that there’s something moving.

Also read: 

• Major rail project in Middle East, US leverage against China-Russia

• BRI and Central Asia: this is what the region has to offer

• G7 and EU plan a new BRI in the making?

A railway project linking Saudi Arabia with the UAE and India via sea would not only bring logistical and trade benefits to the states involved. In fact, it would attempt to balance the influence of two other major players: China with its Belt and Road initiative and Russia with the International Nort-South Transport Corridor (INSTC).

Middle Eastern status quo

Russia and China being close friends is old news. The same applies to their growing influence in Central Asia and the Middle East. On the one hand, Russia has found a key partner in Iran to diversify its supply chains and exports from north to south on the way to India via the INSTC. It is cooperating with it financially via the merging of the two states’ interbank payment systems and by actively participating in joint investments in Iranian railway infrastructure. Moreover, the Russian-led INSTC is becoming enticing for more Middle Eastern countries, with Bahrain recently expressing its willingness to participate in the project.

On the other hand, China played a key role in reviving the long problematic diplomatic relations between Iran and Saudi Arabia and advocates for the Chinese Yuan to become one of the main oil exchange and trade currencies. Many of China’s oil suppliers are already accepting payments in Yuan. Consequently, both Russia and China, with each other’s backing, are expanding in the region, using different means that serve the same cause.

What happens with India?

Despite China-India not cooperating closely, the second has been tightening its ties with Russia lately, eying mostly trade possibilities through the INSTC and sea shipping. Theoretically, India is one of China’s main competitors in Asia. Nevertheless, this does not prevent it from building cooperation with Russia. One of the latest developments on this front concerns the Russo-Indian partnership on the Caspian Sea with shipbuilding and maintenance joint ventures that aim to tap the multimodal potential of the INSTC.

However, despite India seeing a strategic trade and military partner in Russia, the state attempts to also stay close to the US by adopting a neutral position regarding international conflicts and relying heavily on it for international trade.

The Middle East railway project

The shared US, Saudi, Emirati and Indian plans for a rail-sea corridor linking the Middle East with India could put pressure on China and Russia by underlying that the US presence in the region is strong and contributes to investments and by providing alternatives to the Chinese and Russian transport corridor monopoly.

A rail-sea corridor linking Saudi Arabia, the UAE and India could also incentivise other states in the region to jump in and connect some of the world’s most robust and promising economies. On top of that, it could also provide a direct link to the Mediterranean Sea. This might be a far-fetched dream for some; however, according to Axios’ insights, the second pillar that Sullivan wants to discuss with his counterparts in Saudi Arabia is the relations of the country with Israel and the possibility to normalise them further.

Saudi Arabia and Israel do not have diplomatic relations, but they cooperate on many levels, while Israel and the UAE have fully reinstated their diplomatic relations. The two agenda items coinciding should not be attributed to luck but to a dynamic US intervention in the Middle East to restore balance, with railway and transport investments playing a leading role.

Also read:

• Under pressure: Russia-India attempt to speed up INSTC trade

• From Moscow to Mumbai: geopolitical powerplay determines the corridor’s future

• Bahrain wants in on the INSTC