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Impact on Global Supply Chain due to the Israel-Hamas Conflict

Importance of Middle East in the Global Supply Chain

By virtue of the advantageous positioning at the intersection of major international trade routes, ports situated throughout the Middle East perform an indispensable function in facilitating trade transactions and enabling the conveyance of manufactured components, finished products, and raw materials between pivotal eastern and western markets.

The Strait of Hormuz spanning a distance of 39 km serves as the sole passage to the expansive ocean for more than one-sixth of the total global oil production and approximately one-third of the worldwide supply of liquified natural gas (LNG). Direct port calls are made in the Gulf and the Red Sea to serve the Middle East area, with Dubai and Jeddah serving as hubs for intra-regional feeder services.The Haifa port of Israel is located on the Mediterranean coast as an important crossroads for trade and commerce between Europe, the Middle East, and Asia. The ports of Ashdod and Ashkelon account between key trade of Israel with the world.

In July 2022, APSEZ Ltd. (Adani Group) successfully secured a government tender from the State of Israel to acquire the Haifa Port, a prominent commercial centre situated along the Mediterranean coastline of Israel. As per Prime Minister Netanyahu’s statement, the designated area will function as a dual-purpose hub for the import and export of a substantial volume of commodities, facilitating direct transportation from the region to the Mediterranean and Europe. This route will circumvent the Arabian Peninsula.

Impact on Global Supply Chain due to the recent armed conflict

According to data provided by MarineTraffic, a ship tracking and marine analytics service, it was observed that a minimum of three cargo and dry bulk ships transporting cargo intended for Ashdod, had halted in close proximity to the area. According to statistics from MarineTraffic, the current number of ships docked in Ashdod port is approximately 13. These ships consist of cargo, container, and dry bulk boats. The prominent container shipping company, MSC, recently reported that there has been a rise in waiting times at Ashdod port. This can be attributed to heightened security checks and a scarcity of labour.

According to Christian Roeloffs, the CEO of Container xChange, the Suez Canal, which serves as a vital maritime route for numerous commercial vessels such as container ships, could potentially encounter disturbances. Likewise, the Strait of Hormuz, a crucial conduit for the transportation of oil and gas, may potentially have repercussions. However, the magnitude of these effects will primarily be contingent upon the growth and duration of the conflict.

Global Dynamics of Trade at Risk due to the Israel – Hamas Conflict

The global supply chain may have to face significant challenges that may impact vital industries including energy, pharmaceuticals, technology, agriculture, logistics, and commodities.

The Middle East plays a pivotal role in the global energy sector, serving as a vital centre for both the production and transportation of energy resources. The possible occurrence of instability within the region may frequently result in significant fluctuations in prices within the oil and gas markets. Israel has gained recognition as the “Startup Nation” and holds a prominent position in the global technology industry. The potential interruption in the operational activities of technology companies, a significant number of which possess research and production facilities within the region may result in the postponement of product launches and the occurrence of bottlenecks in the supply chain.Both Israel and the Palestinian territories are significant contributors to the global agricultural industry. The ongoing conflict has impeded agricultural operations, posing a possible risk of scarcity in several food commodities.The Middle East region plays a significant role in the global supply chain of diverse raw materials and commodities. Potential shortages and price volatility in global markets may arise as a result of disruptions in production and transportation.

Major Repercussions within the supply chain due to the conflict

Container Shipping: The potential expansion of the ongoing conflict in Israel beyond its national borders poses significant risks to two crucial maritime chokepoints: the Suez Canal, a strategically important waterway for diverse commercial vessels, including container ships, and the Strait of Hormuz, which holds a pivotal position in the transportation of oil and gas.

Petroleum & Oil: The escalation in petroleum prices, frequently intensified by geopolitical tensions in the Middle East such as the present conflict between Israel and Palestine, introduces an additional level of intricacy to worldwide supply networks.The petroleum crisis has significant implications for the economic stability of nations, shedding light on the complex relationship between geopolitics and the global commerce and logistics network. This situation emphasises the susceptibility of supply chains to external shocks and conflicts in major oil-producing areas.Petroleum, being an essential element in freight operations, incurs elevated operational expenses for carriers when its price is higher. Consequently, these raised costs are passed on to consumers, resulting in augmented expenses and possibly disruptions in transportation timelines.

Exports – Imports across Asia and Europe: The current conflict is anticipated to have sector-specific ramifications, particularly within businesses such as iron, steel, fertilisers, and organic chemicals.The dynamic situation at hand highlights a more extensive apprehension for multinational corporations that heavily depend on resources obtained from, or passing through, the impacted area.

Pharmaceuticals: The Indian exports primarily consist of bulk drugs (API), drug formulations, and biologicals.The Indian pharmaceutical business demonstrates resilience amidst the Israeli conflict. Given the minimal exposure to the Israeli market and the notable growth in pharmaceutical exports, it is anticipated that any potential interruptions would be of a temporary nature and may be effectively managed. In case of prolonged escalation, it is suspected that the challenges may become more acute in near future.

International Trade Corridors: The India-Middle East-Europe Economic Corridor (IMEC) Project, part of the Partnership for Global Infrastructure and Investment, was signed at the G20 Summit in New Delhi. The conflict may pose investor apprehensions in developing trade routes and possibly delay government clearances.

In order to remain well-informed during these times of uncertainty, it is advisable to establish communication with reliable local sources to obtain the most up-to-date and reliable security updates. The evaluation of port calls on a daily basis is of utmost importance. Utilise real-time container monitoring technology to obtain immediate updates regarding crucial shipments featuring prearranged port calls inside the vicinity of Israel’s ports.

The present volatile situations is being closely monitored by global industries and economic organisations. The industries are investing in enhancing reliable local sources of communication to obtain the most up-to-date and reliable security updates. The evaluation of port calls on a daily basis is of utmost importance. The companies may consider the deployment of alternative trade routes in case of an escalation of the conflict in the region.

Author Dr. Praneti Shah