The Middle East has long been a geopolitical hotspot, but recent escalations in tensions have brought new threats to global supply chains. Two significant risks are currently unfolding: Iran’s threat to close the Strait of Hormuz and the Houthi attacks on commercial vessels in the Bab-el-Mandeb Strait. While these events are geographically distinct, they share striking parallels, both threatening key maritime routes and challenging global trade.
We’ll take a closer look at these two ongoing disruptions, exploretheir impact on global supply chains, the key similarities and differences between them, and which industries and regions are most affected.
The two threats: Strait of Hormuz vs. Bab-el-Mandeb Strait
The Strait of Hormuz and the Bab-el-Mandeb Strait are two of the most critical chokepoints in global trade. Both play an outsized role in the transportation of oil, liquefied natural gas (LNG), and containerized goods. Disruptions in these waterways have wide-reaching effects on international supply chains.
Strait of Hormuz: The Strait of Hormuz is one of the world’s busiest maritime passages, with nearly 20% of the world’s oil flowing through it daily. In addition, it is a major route for LNG exports. Recently, Iran has threatened to block or disrupt access to the Strait, using it as leverage in the face of rising tensions with Israel, the U.S., and its allies. While experts believe a full closure is unlikely, even partial disruptions could send shockwaves through global oil prices, causing ripple effects across energy markets and shipping lanes. Already, vessels are being reported as turning around to avoid the region.
Bab-el-Mandeb Strait: The Bab-el-Mandeb Strait, connecting the Red Sea to the Gulf of Aden with the Suez Canal, has been a long-standing point of vulnerability due to Houthi rebel attacks on commercial vessels. These attacks, which began October 2023, have targeted both military and commercial ships in the region. The Houthi rebels have caused significant disruption to shipping, forcing companies to reroute vessels and increase security measures. As a result, shipping insurance premiums have risen for vessels passing through this strait, and transit times have lengthened, especially as vessels are forced to take longer routes around South Africa’s Cape of Good Hope.
Similarities between the threats
Strategic importance: Both the Strait of Hormuz and the Bab-el-Mandeb Strait are essential for oil exports, though Hormuz handles a larger share. Disruptions to either waterway cause significant delays in global trade and energy markets, increasing fuel prices and shipping costs.
Geopolitical leverage: Iran and the Houthi rebels have used key maritime passages as leverage in broader geopolitical standoffs. Iran’s threats to close the Strait of Hormuz aim to intensify regional tensions, particularly with Israel, while Houthi attacks in the Bab-el-Mandeb Strait show support for Hamas in Gaza. Both actions create global pain points to garner support for regional resolutions.
Impacts on shipping: The disruptions in both straits have led to rerouting of ships, either around the Cape of Good Hope or through alternative routes. This not only increases shipping times but also raises transportation costs, further compounding the challenges faced by global supply chains.
Differences between the threats
Oil vs. general cargo: The Strait of Hormuz is more critical to the transportation of oil and LNG, which has a direct impact on energy prices. The Bab-el-Mandeb Strait, while still important for oil, handles more containerized cargo, impacting global trade in goods like electronics, pharmaceuticals, and consumer products.
Nature of disruptions: The Houthi attacks are more frequent and less predictable, with ships being targeted without warning. These attacks have led to a significant rise in shipping insurance premiums for vessels transiting through the region. In contrast, while Iran’s threats to close the Strait of Hormuz are less frequent, they loom as a strategic bargaining chip, with the potential for sudden, significant disruption.
Who is most impacted?
Energy markets: Oil-dependent countries, particularly in Asia and Europe, are most impacted by disruptions in the Strait of Hormuz. If Iran were to close the Strait or cause significant delays, oil prices could spike, leading to inflationary pressures in global markets.
Global Shipping and Trade: The shipping industry is directly affected by disruptions in both straits. Shipping companies face longer transit times and increased fuel costs, leading to higher overall transportation costs. Sectors like manufacturing, retail, and consumer goods are most impacted, as delays in goods transportation can lead to stockouts and delivery delays.
Regional Economies: Countries in the Middle East, such as Saudi Arabia, UAE, and Qatar, face immediate economic repercussions from both threats, with the Strait of Hormuz being crucial for their oil exports and the Bab-el-Mandeb Strait being critical for other forms of trade. Countries in the Horn of Africa and those relying on the Suez Canal for trade are also vulnerable to disruptions in the Bab-el-Mandeb Strait.
Historical use of supply chains during conflict
While these two events are occuring simultaneously for similar reasons, leveraging supply chains during times of conflict is not unique to Iran or the Houthis. Historical examples include:
- Sanctions on Russian Trade: Following Russia’s invasion of Ukraine in 2022, many nations, including the US, EU, and Canada, imposed restrictions on imports and exports with Russia. Russian oil has been severely affected, with many countries halting imports, and exports to Russia continue to be significantly limited.
- The U.S. trade embargo on Cuba: Initially an arms embargo in 1958, this was expanded to a full trade embargo in 1960 and remains in effect today. It was enforced during the Cuban Missile Crisis. The United Nations estimates the embargo’s impact on the Cuban economy has exceeded $1 trillion, and the embargo continues drawing international criticism.
- Closures of the Suez Canal: In 1956, Egypt closed the Suez Canal during the conflict involving Britain, France, and Israel, from October 1956 to March 1957. In 1967, Egypt closed the canal again during the Six-Day War, and it remained shut until 1975.
Final thoughts
The threats posed by the closure or disruption of both the Strait of Hormuz and the Bab-el-Mandeb Strait underscore the critical vulnerabilities in global supply chains. While the Strait of Hormuz poses a direct risk to global oil markets, the Bab-el-Mandeb Strait presents ongoing risks to general cargo shipments.
For businesses, the escalating tensions in these regions and historical supply chain disruptions during times of conflict are a reminder of the fragility of global trade and the need for strategic risk management. As supply chains become increasingly interconnected, disruptions in one region can have ripple effects across industries worldwide. Monitoring geopolitical risks, diversifying shipping routes, and developing contingency plans will be key for companies looking to mitigate these threats and maintain business continuity in an uncertain global landscape.
