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30 May 2024 4:54AM

Supply Chains at Risk: The Impact of the Israel-Iran Conflict on Global Markets

The recent conflict between Israel and Iran is expected to exert significant economic repercussions on a global scale, impacting various sectors such as shipping and oil.

Escalated Shipping Expenses
Budding Oil Supply Disruption
Effect on Israeli Exports
Global Inflation 
Conflict Beneficiaries 
Likelihood for Regional Escalation
The Role of the Strait of Hormuz
Overcome Supply Chain Challenges Due to Geopolitical Conflicts with TFI 

Below is our analysis of the potential economic consequences amid the geopolitical dynamics driving this situation.

Escalated Shipping Expenses

The ongoing conflict amplifies risks in critical regions, leading to heightened freight and insurance costs. Vessels may need to opt for longer alternative routes to circumvent conflict areas, thereby adding to shipping expenditures.

Budding Oil Supply Disruption

The Strait of Hormuz, crucial for about one-third (33%) of global oil production, faces the risk of blockade amid the conflict. Such disruption could mirror past oil crises. Moreover, there’s a looming threat of the Suez Canal being targeted, adding complexity to global trade routes.

Effect on Israeli Exports

Israel, renowned for its strong electronics sector, could encounter production and logistics disruptions, potentially causing shortages in global markets.

Global Inflation 

With the transportation of goods becoming more challenging and costly due to geopolitical tensions, a surge in global inflation may ensue, impacting economies across the world. 

Conflict Beneficiaries 

Amidst the turmoil affecting various sectors, oil and insurance companies located outside the immediate conflict zone may reap higher profits from increased oil prices and insurance premiums. Additionally, the arms industry could see heightened demand for military equipment.

Likelihood for Regional Escalation

Although the extent of the conflict remains uncertain, there is a genuine risk that it could escalate.

The Role of the Strait of Hormuz

The Strait of Hormuz is a vital sea passage that links the Persian Gulf with the Gulf of Oman, situated between Iran to the north and the UAE and Oman’s Musandam Peninsula to the south. This strategic waterway spans about 33 kilometers in width, with navigation lanes approximately 3 kilometers wide on each side. The Strait of Hormuz is a crucial shipping route handling almost 30 percent of the global oil trade. It serves as a critical route for oil transport from Gulf nations like Iraq, Qatar, Bahrain, the UAE, Kuwait, and Saudi Arabia to the Indian Ocean.For oil-producing countries in the OPEC group, including Saudi Arabia, Iran, the UAE, and Kuwait, the strait is the sole maritime route for their oil exports. Additionally, Qatar, the world’s largest exporter of liquefied petroleum gas (LPG), relies on this strait for its shipments. An increase in tensions between Iran and Israel has sparked new worries. Over the years, Iran has frequently attacked merchant vessels passing through the chokepoint and previously issued threats to obstruct transit. Analysts warned that if it happens, the world can expect significant increases in oil and LNG prices, which could in turn fuel inflation.

Overcome Supply Chain Challenges Due to Geopolitical Conflicts with TFI 

The ongoing conflict between Iran and Israel has the potential to disrupt your logistics operations and profitability. At TFI, we offer a range of tailored global freight solutions designed to address your unique needs and timelines.Contact our team of experts today to discover how we can assist you in achieving your goals amidst the geopolitical uncertainty in the Middle East region!

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