The Israel-Hamas conflict, which erupted in October 2023, has now escalated, spreading into Lebanon and Syria and indirectly impacting Jordan and Iran. Major regional powers, such as Saudi Arabia, the UAE, Kuwait, and Qatar, have thus far avoided direct involvement, but reports indicate their potential intervention soon.
Iran, a crucial player in the global oil market, faces significant risks as the conflict intensifies. Any further escalation could disrupt oil supplies, leading to higher global oil prices and impacting economies that heavily rely on oil imports. Oil prices have already surged by $4 per barrel, affecting vital trade routes such as the Strait of Hormuz, through which a substantial portion of the world’s oil passes.
Many organizations in the field have highlighted that the Iran-Israel conflict could severely impact world trade and the global economy in multiple ways. The escalating conflict across the West Asian region is expected to increase already high logistics costs and harm trade across key sectors, such as oil, electronics, and agriculture, as reported by exporters. Additionally, insurance premiums for exports to nations directly involved in the war are likely to rise, adding pressure on exporters’ working capital and overall operational costs.
These disruptions are expected to lead to higher shipping expenses and delays, severely impacting industries that depend on stable supply chains in the Middle East. Sectors ranging from electronics to agriculture may face setbacks due to interrupted transportation and logistics networks.
Furthermore, the potential imposition of Western sanctions or trade restrictions could complicate global trade dynamics, exerting additional pressure on economies grappling with disrupted supply chains and escalating costs.
Here are some key points establishments in the trade world need to prepare for effectively:
- Disrupted Shipping Routes: The Eastern Mediterranean is a key area for global shipping. Escalation of the conflict could deter vessels from using these routes, especially near the coastlines of Israel and Lebanon. This could lead to rerouting and delays, increasing transport times and costs.
- Port Closures: Key ports in Israel (like Haifa and Ashdod) or Lebanon (such as the Port of Beirut) could face disruptions, leading to delays or stoppages in the handling of imports and exports. The closure or limited functioning of these ports could affect supply chains for essential goods.
- Airspace Restrictions: Air cargo would be affected if airlines avoid airspace over conflict zones. Flights might need to be rerouted, leading to longer transit times, increased fuel consumption, and higher freight costs.
- Supply Chain Disruptions: The region is a source of raw materials and a transit hub for goods moving between Europe, Asia, and Africa. The conflict could delay the movement of goods and disrupt production schedules for companies dependent on supply chains through this region.
- Higher Insurance Premiums: Insurance companies could raise premiums for vessels and shipments passing through high-risk conflict areas, increasing overall logistics costs.
- Energy Supply Impact: The region is crucial for energy logistics, with oil and gas pipelines as well as shipping lanes for oil tankers. Any conflict-related disruption could impact energy supplies and prices, affecting global logistics and operational costs.
- Border Restrictions: Tighter border controls or closures, particularly at crossings between Lebanon, Syria, and Israel, could hinder the trucking industry, affecting land-based cargo movement and increasing delivery times.
- Risk of Targeting Logistics Infrastructure: Conflict zones might witness deliberate or incidental damage to logistical infrastructure, such as warehouses, roads, and communication systems, further complicating supply chains.
Overall, the instability and associated risks would disrupt maritime, air, and land logistics in the region, leading to increased costs and delays, and negatively impacting businesses reliant on these supply chains.
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