Impacts of an Israel-Iran Conflict on Global Supply Chains

Iran recently attacked Israel in response to an Israeli airstrike on an Iranian consulate in Syria. In a time when the Middle East is on edge because of the Israel-Hamas conflict, this attack has procurement professionals facing a rising concern: what would be the impacts of an Israel-Iran conflict on an already strained global supply chain?

In today’s post, we’ll explore these potential consequences by assuming a neutral stance on geopolitics and focusing on the logistical and economic impacts on global supply chains.

Escalating tensions in the Middle East

Tensions between Israel and Iran have been building for over 40 years. However, the recent conflict between Israel and Hamas and other events have brought things to a head.

Last April 13, the world held its breath and watched in awe as Iran launched 170 drones, 120 surface-to-surface ballistic missiles, and 30 cruise missiles on Israel.

It was Iran's response to a deadly Israeli airstrike that destroyed the Iranian consulate in Damascus, Syria, two weeks earlier, on April 1.

Beyond the potential risks to the region’s stability, the immediate impacts of an Israel-Iran conflict would be felt the world over.

The key to those effects relies on the Middle East’s strategic importance to global supply chains.

The Middle East: A historical trade crossroads

Numerous cities in the Middle East were crucial stops on the famous Incense Route and the Silk Road. These vast, interconnected trade routes allowed goods like silk, spices, frankincense, and myrrh resins from the Arabian Peninsula, China, and India to reach Europe.

Both Iran and Israel are essential parts of the Middle East region, which has played a pivotal role as a trade hub throughout history. Its strategic location at the crossroads of Europe, Asia, and Africa made it a natural bridge for trade between these continents. It is this bridge that is now under threat.

The Middle East and today’s global trade

The Middle East is even more critical in today’s global supply chain than in the past. It holds some of the world’s most important maritime trade routes:

• The Strait of Hormuz: This narrow waterway between Iran and Oman is the world's most prominent oil artery and a critical choke point for global oil trade. Around 20% of the world's oil passes through the Strait of Hormuz daily, and it’s also a major route for 20% of the world’s liquefied natural gas (LNG)

• The Suez Canal: This artificial sea-level, 193-kilometer-long waterway in Egypt, connecting the Mediterranean Sea to the Red Sea, provides a shortcut between Europe and Asia. Transit takes about 13–15 hours, and more than $1 trillion worth of goods go through it yearly. The latter translates into about 12% of global trade and 30% of global container traffic, making it even more critical on the world stage than the Panama Canal .

• The Bab-el-Mandeb Strait: Located between Yemen, Djibouti, and Eritrea, this strait connects the Red Sea to the Gulf of Aden. Its strategic importance is similar to the Strait of Hormuz, making it crucial for oil shipments heading to Europe and the Americas.

In summary, the Middle East is a critical artery for international trade. A confrontation between Israel and Iran could clog that artery, sending shockwaves throughout the global economy.

Oil and energy: A tangled web

The impacts of an Israel-Iran conflict on energy markets go beyond shipping chokepoints. Iran produces 4 million barrels of oil per day (bpd), or about 4% of the total world production, making it the 9th largest producer on Earth.

Iran is also a considerable oil exporter, with exports reaching 1.6–1.8 million bpd .

Several countries, including Japan, Korea, India, and China, rely heavily on Iranian oil. Any conflict involving Iran could disrupt its production and exports, significantly impacting global oil prices.

Impacts of an Israel-Iran conflict on shipping and maritime security

Conflict can also lead to heightened concerns about maritime security. We’ve already seen how Somali piracy is reemerging in vulnerable, unpatrolled areas, with attackers targeting ships for ransom.

Insurance costs for vessels operating in the region are now threatening to skyrocket. Rerouting around conflict zones also adds significant distance and time to journeys, further straining already stressed supply chains and making them more costly.

Impact on specific industries

The above shows that the ramifications of an Iran-Israel conflict would extend far beyond the movement of oil. A complex web of interconnected industries would feel the pinch, including:

• Automotive: Disruptions to raw materials and parts flow from the region or Asia could stall assembly lines and delay vehicle production.
• Electronics: The global electronics industry relies heavily on a steady supply of semiconductors from Taiwan and other Asian countries. Any conflict-induced instability in the Middle East could lead to shortages and price hikes for electronic devices.
• Textiles: Iran, Israel, Turkey, Egypt, and Pakistan all have sizable textile industries. A conflict could disrupt production and exports, impacting the global availability of textiles and potentially driving up consumer prices.

Many more industries would suffer if a new war in the Middle East broke the bridge between Europe and Asia. Proactive supply chain and procurement professionals need a way to mitigate the risk of critical supply disruptions.

BabelusAI can help. Our AI-powered tool can help you find alternative suppliers anywhere in the world in record time to avoid the fallout from situations like this. Sign up for a free pilot for your company today and take your supply chain to the next level.

What other steps should supply chain professionals take to prepare for potential supply disruptions? What contingency plans have you implemented at your organization? Share your thoughts in the comments below.