Iran Crisis: How will the war in Iran affect Global Supply Chains?
Recent developments in the Middle East have created significant uncertainty and volatility in key commodity and energy pricing and continuity of supply.
NWUPC continue to engage with our supply chain partners, UKUPC Consortia and other relevant bodies to understand the potential impacts of the developments in the Midde East, which is at present very much a developing situation.
You can find a dedicated page to the conflict in the link below which is being updated to have the most recent information. You can find more information on the ongoing situation for Shipping, Lead Times and Supply Availability, Services Sector Impacts and Product Impacts here:
Key points from the past few weeks:
- On Feb. 28, the U.S. initiated Operation Epic Fury with a joint attack on Iran alongside Israel.
- The conflict is likely to impact lead times, supply availability, shipping routes and company revenues.
- Iran controls the Strait of Hormuz, through which approximately 20% of global oil passes.
- The Red Sea / Suez Canal / Bab al-Mandab Strait have been disrupted by Iran backed Houthi forces. Rerouting to the Cape of Good Hope adds approximately 3,000-3,500 nautical miles which equates to 10 to 14 additional days of transit times for goods. India and China face significant supply chain disruptions as major importers through the two major Straits.
- Freight suppliers have deployed Emergency Conflict Surcharges, War Risk Surcharges, and Bunker Adjustment Factors clauses, ranging from $2,000-$4,000 in increased fees per container.
- Air freight for time-sensitive goods will also rise due to reduced capacity, increased demand, and surcharges. Air cargo has been constrained by closed airspace and airports in countries including UAE, Qatar, Bahrain, Kuwait, Iraq, and Iran. While less than 1% of all freight moving globally is by air, the products that do travel by air tend to be perishable or high-value goods like pharmaceuticals, electronics and produce [AP]
- Oil prices felt immediate impact of +8-9%, with gas prices jumping over 10 cents in a day.
- “If it’s a war of attrition, this entire year will be disrupted and volatile… if it’s over in a couple of weeks, we should be back to (transportation) normal in a couple of months.” [Institute for Supply Management]
- Main impact is determined by Gulf supply chain exposure, then secondary effects that will be felt from sporadic delays, and temporary shortages.
- Impact of reduced Iranian output: Hopes that oil and natural gas prices will not skyrocket as, Iran generates around 4% of global oil production and 6% of natural gas, not large enough to substantially move the needle on price. [David Gonzalez, VP analyst at Gartner’s supply chain practice].
- Increased global output: OPEC+ has agreed to a modest increase in oil output for April, because of the disruption.
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