Photo via

Escalation in Middle East conflict sparks more concerns about supply chain disruption

While there have been no significant and immediate knock-on effects to supply chains following recent developments in the Middle East, analysts point out that a further escalation in the conflict would inevitably have a major impact.

You can read this article in 11 minutes

Recent events in the Middle East, including Iran’s attack on Israel, and Iran’s seizing of the MSC Aries container ship, have naturally sparked a number of fears about how supply chains could be impacted.

Here, we review the takes of various analysts on a range of different factors, including fuel prices and shipping rates, as well as contingency plans should the Strait of Hormuz be fully or partially closed.

Oil prices

First and foremost, let’s take a look at the oil price situation.

In a note to clients that has been widely distributed online, Max Layton, Global Head of Commodities Research at Citi Group, said that prices had not risen in the aftermath of the attack due to the fact markets had already taken onboard the possibility of an attack.

However, Layton added:

“What is not priced into the current market, in our view, is a potential continuation of a direct conflict between Iran and Israel, which we estimate could see oil prices trade up to +$100/bbl, depending on the nature of the events.”

Remarks by Goldman Sachs analysts, in a similar note, also struck a comparable tone:

“We estimate that oil prices already reflect a $5-to-$10-a-barrel risk premium from downside risks to supply. The potential Israeli response to Iran’s attack is highly uncertain and will likely determine the extent of threat to regional oil supply,” said the analysts.

The Goldman Sachs analysts also pointed out in the note that Iranian crude production had risen by over 20% in the last 24 months to 3.4 million barrels per day, which represents approximately 3.3% of global supply.

Therefore, Goldman Sachs believes that if the market were to price a higher probability of reduced Iran supply, it could mean a higher geopolitical risk premium.

Finally, Goldman Sachs also highlighted that increased US oil output has also influenced oil prices. The U.S. Energy Information Administration has confirmed that the top shale-producing regions will output 16,000 more barrels per day – the highest figure in 5 months.

Shipping rates and operations

Possible Impact on rates

Peter Sand, Xeneta Chief Analyst, was quick to react to the recent escalation of the conflict in the Middle East, offering his thoughts on his LinkedIn page yesterday.

In Sand’s opinion, there are no signs of the seizure of the MSC Aries representing the “start of sustained and indiscriminate attacks”. He also added that container ships continue to sail through the Strait of Hormuz, where MSC’s ship was boarded and hijacked by Iran’s military:

“There would be far more concern in the industry if this was the start of sustained and indiscriminate attacks, but that doesn’t appear to be the case and container ships are continuing to sail through the Strait of Hormuz. However, this is another example of nation states attempting to weaponize international supply chains and that should be a cause for concern for us all.”

Regarding the potential impact of recent events on ocean freight shipping rates, Sand stated:

“Whenever there is uncertainty in the market there is the potential for ocean freight shipping rates to increase – as we have seen most recently following the escalation of conflict in the Red Sea. However, oil prices have not spiked as some feared they may do, and ships are seemingly sailing through the Strait of Hormuz without issues, so any direct impact on rates may be limited.”

Shipping Insurance costs

Meanwhile, Lars Jensen, renowned shipping expert and CEO of Vespucci Maritime, also took to LinkedIn yesterday to share his insights on recent events.

One of the issues Jensen highlighted concerned shippers’ cargo insurance.

“Double-check your cargo insurance – not only in terms of what it covers, but also in terms of whether it is void if your cargo is suddenly in a warzone, even if the planned journey and/or vessel was not supposed to take you into a warzone,” warned Jensen.

Jensen continued:

“[There are] Possible increased risk premiums to and from the Persian Gulf area as well as Gulf of Oman – not necessarily labelled as a risk premium, but potentially as PSS, Congestion Surcharge, War Risk Surcharge or some new type of acronym.”

Potential closure or partial closure of the Strait of Hormuz

Another issue Jensen shed light on was the possibility of the Strait of Hormuz effectively being closed partially or fully due to an escalation in conflict in the Middle East.

He advised shippers to look at their contingency planning, adding that other locations should also have contingency plans ready to tackle escalating port congestion problems in for example Sri Lanka, Singapore, Port Klang and Tanjung Pelepas. Moreover, Jensen believes Indian ports could also become more problematic too.

In addition, Jensen had the following to say about what could happen in the event the strait is partially closed:

“Your cargo might then conceivably be left in transhipment hubs elsewhere and need onwards carriage. You may not always be able to predict where this might happen, but have a plan ready for how to deal with it if it arises,” stressed Jensen.

Although Jensen does not rule out the possibility of the strait becoming off-limits, he predicts a scenario whereby shipping lines will come to different conclusions about the level of risk involved:

“It is of course possible that a full closure of the Strait of Hormuz could happen, but presently it appears that the scenario to plan for might more resemble the one in the southern Red Sea where some shipping lines will still operate and some will not. And some lines might operate some of their vessels, leaving other vessels to be relocated elsewhere,” said the Vespucci Maritime CEO.

Concerns remain over shipping in the Mediterranean Sea

Worryingly, Jensen concluded his post by warning shippers about the possibility of ships in the Eastern Mediterranean being targeted:

“Finally, it is clear that threats against shipping made by Iran, and their proxies in Yemen, have over the past 6 months not been idle. It might therefore be prudent to recollect the threat made by an Iranian Revolutionary Guards commander in December to also target shipping in the Mediterranean Sea. Keep in mind that groups in Algeria have received attack drones from Iran. And as drones and missiles have the range to hit Israel, they could also impact shipping in the East Mediterranean.”

The new normal in the Red Sea

Amid the escalation of the conflict in recent days, it is of course important to point out that major shipping lines have been continually avoiding the Suez Canal for several months now.

The scale of the decline in Suez Canal shipping traffic was put into the perspective in the latest Supply Chain insights report by visibility provider project44, which has published yesterday:

“Since the attacks began in December, 649 vessels have rerouted to avoid the Red Sea. This has caused the lowest volume levels in recent history through the Suez Canal. In March of 2021, the Evergiven got stuck in the canal and halted passage for 6 days. Despite vessels not being able to pass through the canal, that month saw 250% more vessel traffic than March of 2024, which only saw the passage of 140 container vessels. March has seen an 8.5% increase in vessel traffic compared to February, but this is not a substantial enough number to prove that confidence levels for passage through the Red Sea are rising,” reads project44’s most-recent Supply Chain Insights Report.

Regarding how this has all impacted transit times, the report added:

“China to Europe, Southeast Asia to Europe, and Southeast Asia to the US East Coast have all increased a median amount of 10-14 days. Thankfully, this number does appear to have levelled out, so these transit times should represent the new normal as carriers continue to avoid the Red Sea.”

Air freight

Iran’s attack on Israel did prompt some passenger airlines to redirect their flights.

However, when it comes to air freight, Christopher Braun, Head of Airfreight at Forto, believes the impact has been limited.

“The tensions between Iran and Israel have limited impact on air and sea freight at the moment. We have seen some Chinese companies cancel flights from China to the Middle East and Lufthansa did cancel its flights to Iran. Beyond these local consequences, we might see a global increase in fuel’s prices that would then lead to higher rates but for now, the status quo remains,” Braun told trans.iNFO.

Update 17/04/24:

Christopher Braun, Head of Airfreight at Forto, has told trans.iNFO that several carriers have now reduced their capacities further because of re-routing and using different flight paths.

“More fuel is required, because of the TOW (take off weight) restriction, capacities will be reduced for cargo. Also the weather conditions in Dubai have an impact on flight operations that will impact especially HK-EU. We´ll definitely see a spike in rates for this week and next. A general rate increase is possible depending on developments,” said Braun, in an email sent to trans.iNFO.

Forto further explains that the “SWEEP Effect”, which covers strikes, weather, e-commerce, economy and politics, has a big influence on rates. According to Brau, recent developments have brought the “SWEEP Effect” into focus once more.

Clothing manufacturers worried about increased nearshoring and prices being squeezed

Finally, as one would expect, an escalation of the conflict in the Middle East will impact some manufacturers more than others. Clothing manufacturers based in Bangladesh, for example, have been vocal about their concerns for further disruption.

Speaking to the press, Asif Ashraf, managing director of Urmi Garments Ltd, said that an increase in nearshoring was already evident, and could worsen if shipping costs rise.

“Near-shoring is happening in some cases. Many buyers are placing orders with Turkey whereas these orders were supposed to come to Bangladesh. This is because securing deliveries on time is vital to buyers.” Ashraf told Bangladeshi publication the Daily Star.

Md Nasir Uddin, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), also told the same publication that buyers were responding to increased freight rates by trying to negotiate lower prices with the clothing manufacturers themselves.

Photo via