Several press releases hit my inbox every day. I ignore most of them. Usually, the sender is a marketing rep touting a microcap stock of dubious integrity.

But every once in a while, I see a notice that gets my attention. Such was the case last week. The sender was a German media company announcing the opening of a new shipyard in Saudi Arabia.

At first glance, that may not seem like much of a story. There are shipyards throughout Asia and Europe that dominate the industry.

That’s why I’m so interested in this development. When it comes to money, the Saudis don’t mess around. In this case, they want to take market share away from those two continents.

That’s because they know it is only a matter of time until their vast petroleum reserves are depleted and have no more economic value. When that happens, their economy must have transitioned to other industries to avoid imploding.

That explains the Saudis massive investments in auto racing, golf, and soccer. Those three sports have global appeal and generate billions of dollars in advertising revenue, broadcast rights, and gambling income every year.

However, sports alone won’t be sufficient to prop up the Saudi economy. Combined, they don’t come close to adding up to its oil producing revenue.

To fill that hole, the Saudis must find other large industries to dominate. Given the size of their commitment to shipbuilding, it appears that is one of their targets.

According to the press release, the Saudis have created a “Special Economic Zone” for shipping. They are offering “state-of-the-art shipbuilding facilities” with “competitive incentives” that include a “5% corporate income tax rate for up to 20 years.”

Barging In on a New Market

The enticements being offered by the Saudis to lure customers to their shipyard are compelling. Surely, they will attract cash strapped shipbuilders from other parts of the world in need of financial relief.

That’s why this development concerns me. The Saudis have proven many times over they are willing to weaponize energy to advance their national agenda. It is not unreasonable to assume they would do the same with shipping.

Cargo vessels are critical to global commerce. Consider the economic ramifications of a single container ship that rammed into a Baltimore bridge a few weeks ago.

Now, multiply that times hundreds or perhaps thousands of ships that could be taken off the market if the Saudis decided to shut down their shipyards for a while. Global shipping might come to a standstill.

That would significantly disrupt the U.S. economy, which is heavily reliant on consumer spending. In fact, a protracted shipbuilding boycott could trigger a recession.

Even scarier, suppose such a scenario occurred during a time of war. Getting much needed supplies of food, materials, and other supplies to the people most in need might be impossible. Many lives could be lost.

I realize all of that may come across as a bit paranoid, but it isn’t really that farfetched. If we learned anything during the coronavirus pandemic, it is how fragile our global supply chain has become.

Think back just a few years ago. People were fighting in the aisles of department stores over toilet paper. Critical items such as baby formula became unobtainable. It was scary.

All that happened while shipping companies wanted to get those items to consumers as fast as possible. Imagine how much worse it might have been if the objective was to slow things down.

Sea Change Ahead

The U.S. Global Sea to Sky Cargo ETF (NYSE: SEA) is a proxy for the global shipping industry. Its top holdings include the biggest shipping companies in Europe and Asia.

I wrote about this fund a year ago. At that time, SEA was trading near $15 after falling 31% over the previous twelve months.

During that span, global supply chain disruptions caused by the coronavirus pandemic played havoc with the shipping industry. I said then, “I’m not so sure this fund will be around much longer. It has less than $5 million in net assets.”

That hasn’t changed much. Now, the fund has $6 million in net assets. Its share price has been stuck around $15 for the past year.

If the Saudis have their way, many of the companies held by this fund will eventually go out of business. They can subsidize their shipping industry with oil profits until it becomes profitable on its own.

That may take decades to accomplish, which is fine with Saudi Arabia. The widely proclaimed goal of carbon neutrality by 2050 is a quarter century away. Over that span the Saudis can build the best shipbuilding facilities in the world.

That could be good news for SEA, provided it can invest in Saudi Arabia’s shipbuilding industry. But if not, then eventually SEA will steadily diminish in value as its constituents are systematically driven out of business.

I will be interested to see how the major shipbuilding countries in Asia and Europe respond to this threat. Will they put up a good fight, or decide the war is unwinnable and invest in other sectors of their economies instead?

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