Hormuz Crisis’ Supply Chain Impact

The ongoing severe restrictions on shipping through the Strait of Hormuz, triggered by the United States and Israel’s unprovoked attack on Iran, has gone from an understandable reluctance for ships to pass during the conflict to Iranian threats and attacks on vessels, plus attacks on Gulf ports and facilities, to a new US naval blockade on Iranian tankers and potential blackmail ransoms involved to allow navigation to resume via this critical chokepoint. Predictions on the increasing supply chain consequences for all products are being constantly revised.

“If peace with Iran is not locked in within weeks, structural changes in global supply chains will begin to harden,” Kevin O’Marah, Chief Research Officer, Zero100 told us. “War risk becomes baseline: higher insurance/security costs, persistent surcharges, and redesigned shipping networks around safer hubs; longer, less reliable transit times.

“Short-term tactics to shift inventories, seek secondary sources, and pay freight premiums are getting us through this crisis, but nothing will change the fact that ongoing geopolitical tensions mean costs are set to keep rising for the foreseeable future. This means redundant manufacturing capacity, higher inventories, smaller-scale production assets, and rising transaction complexity – all of which add both capital and operating expense.

“Regionalization is a good thing in the long run, and AI could be the breakthrough technology needed to make it all profitable. But the transition will take years. Rising costs of living are the new normal, and until we fully dial in the productivity effects of AI, we will be forced to pass along the costs of transitioning to regionalized supply chains.

“Supply chain transparency is a critical unlock as business leaders look for not only lower product supply costs, but also a good way to explain what customers get for higher prices.”