Summary:
- The ongoing conflict between Israel and Iran, exacerbated by U.S. airstrikes on Iranian nuclear sites, has led to heightened risks for global supply chains, particularly in the Middle East.
- Iran has threatened to close the Strait of Hormuz, a critical chokepoint for global oil and LNG trade. While experts remain skeptical about an outright closure, some carriers are already rerouting ships due to the escalating risks in the region.
- Jebel Ali Port in Dubai, the largest port in the region, is being closely monitored for changes in container dwell times and berthing times. Any disruptions in the Strait of Hormuz would significantly impact container throughput and transshipment operations at the port.
- The conflict and associated disruptions are contributing to rising fuel prices globally, which will likely lead to increased transportation costs across all modes, including shipping, air freight, and road transport.
Overview
Tensions in the Middle East have continued to escalate as Israel and Iran engage in a series of retaliatory strikes. Over the weekend, the conflict intensified when the United States launched airstrikes on Iranian targets, reportedly aimed at dismantling sites involved in nuclear weapon development. At present, there are no visible signs of ceasefire discussions, and the situation remains volatile, with no clear indication of how far the conflict may escalate.
A key concern has emerged from Iran’s threat to close the Strait of Hormuz, through which approximately 20% of the world’s liquefied natural gas (LNG) and 20-30% portion of oil trade pass. A closure of this strategic waterway would severely disrupt access to the Persian Gulf, impacting trade flows for countries such as Qatar, the United Arab Emirates, and Saudi Arabia, and could lead to a sharp rise in fuel prices globally. While experts remain skeptical about an outright closure, some maritime carriers are already rerouting ships away from the region, citing increased risks amid ongoing military strikes.
Potential Impacts
Below is a map view of vessels by type currently in the Persian Gulf.
There are a total of 105 vessels in this region, with traffic through the strait still visible.
The largest port in the area, Jebel Ali Port, is being monitored closely for any changes in dwell time. So far, there has not been major impacts, but if containers are unable to leave the port due to a closure, this number will spike for exports and transshipment containers.
Jebel Ali Port handles various types of vessels weekly, including container vessels, bulk carriers, tankers (both crude oil and LNG), and Ro-Ro vessels (Roll-on/Roll-off for vehicles). The breakdown of vessel types that frequent this port is important, as disruptions could specifically affect the transit of certain goods, depending on the vessel class. Below is a weekly breakdown of the vessel types handled.
Container vessels make up the majority, but there is a lot of tanker traffic and general cargo in the area as well.
As the situation continues to develop, key metrics being closely monitored include vessel berthing times, which will increase if vessels are unable to depart due to congestion or port closures. The number of vessels in the region could decrease if the closure of the Strait of Hormuz limits entry into the Persian Gulf, forcing ships to be rerouted to other ports, such as those on the East Coast of Africa. Additionally, excess transit times will result from rerouted shipments, as goods may need to be transported around the Cape of Good Hope, adding weeks to the journey.
Additional complications
The situation in the Middle East is further complicated by Houthi attacks on commercial vessels, which have led many carriers to alter their shipping routes. These attacks have significantly impacted the usual passage through the Suez Canal, forcing vessels to reroute around the Cape of Good Hope, adding roughly two weeks to transit times. This disruption, along with ongoing strikes and instability in the region, has effectively crippled Saudi Arabian ports and further strained supply chains.
In addition, the closure of the Strait of Hormuz could exacerbate challenges for global oil and gas markets, as this waterway is essential for oil exports, especially for Saudi Arabia, Iran, and the United Arab Emirates. A prolonged closure would likely increase the cost of imports for major economies, including the United States, which is already dealing with rising tariffs on various goods. The increasing tensions and disruptions in the Middle East are also expected to further inflate fuel prices, which will, in turn, increase transportation costs across all modes, including maritime shipping, air freight, and road transport.
Summary
The ongoing conflict between Israel and Iran, combined with the threat of a Strait of Hormuz closure and other geopolitical tensions in the region, poses significant risks to global supply chains. The most immediate impacts are likely to be seen in fuel prices, shipping delays, and port congestion, especially at Jebel Ali and other regional hubs. The situation underscores the vulnerability of critical global shipping lanes and supply networks in the face of geopolitical instability. Stakeholders should remain agile in their response, closely monitoring developments and considering alternative routes or sourcing strategies to mitigate potential disruptions.
