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.
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.
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 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:
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.
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.
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.
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:
Many more industries would suffer if a new war in the Middle East broke the bridge between Europe and Asia. Knowing what could happen is half the battle; supply chain professionals must hope for the best but prepare for the worst… that’s where BabelusAI can help.
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