Implications of the latest conflict in the Middle East on supply chains

On 28 February, the United States and Israel launched joint attacks on Iran, which then retaliated against surrounding countries. It is difficult to say how long the conflict will last, but even short-term impacts can have significant effects. Following the attacks, sovereign airspace across Qatar, the United Arab Emirates, Saudi Arabia, and Kuwait was immediately closed, grounding flights and forcing major airlines to suspend operations.

This widespread airspace shutdown has severely reduced global air freight capacity, specifically affecting air trade corridors connecting Asia to Europe and the Middle East.

Furthermore, following the attacks, Iran closed the Strait of Hormuz. As the world’s busiest oil-shipping channel, the closure of the Strait of Hormuz had an immediate impact on energy markets — crude oil and gas prices rose and natural gas in Europe surged nearly 40% in one day, reportedly. There is a ripple effect on the production of energy-intensive products, many of which are used by food and beverage companies for packaging, thus, prices for materials like plastic and glass could soar. However, food commodities are also at risk, with freight between Asia and Europe disrupted.

Nik Modi, managing director & global co-head of consumer equity research US beverage, household personal care, and packaged food analyst at RBC Capital Markets, wrote in a report on 2 March, that the most recent conflict in the Middle East has effectively neutralized two of the most vital chokepoints in global maritime trade: the Strait of Hormuz and the Suez Canal. He said that commercial ship traffic through the Strait of Hormuz, a narrow waterway connecting the Persian Gulf to the Gulf of Oman, plummeted by 70% immediately following the strikes. In response, global shipping giants CMA CGM and Hapag-Lloyd suspended all navigation through the Gulf.

Vessels that were already inside the Persian Gulf were instructed to take shelter at major hubs such as Jebel Ali, Abu Dhabi, and Doha, effectively pausing cargo movements until safe passage could be re-established. “We note that rerouting vessels around the Cape of Good Hope extends the distance of traditional Asia-to-Europe and Asia-to-US East Coast lanes significantly, increasing transit times by an estimated 10 to 14 days. For certain regional exporters, the diversion could add between 15 and 20 days to transit schedules for shipments bound for Western markets,” Modi explained.

In his report, Modi noted four implications for consumer staples company fundamentals (in their areas of coverage, but these could impact many CPG items including coffee and tea) based on historical precedence:

1. Supply chain disruptions leading to delays in securing important inputs/product,

2. Increased costs (energy and logistics costs),

3. Market share erosion based on local boycotts, and

4. General exposure to the region and risk of deteriorating consumer sentiment.

This morning, Rabobank held a webinar, Iran Conflict Update: Navigating the Market Impact, which discussed the fast‑moving developments in the Middle East and their global ramifications, including how the escalation reshapes geopolitical and economic risks and what an extended disruption around the Strait of Hormuz could mean for supply, pricing, and volatility ahead.

Rabobank’s global energy strategist Joe DeLaura said this is a war for critical energy and minerals, adding “this war is the defining war of the last 40 years, nothing like the last Persian Gulf War.”

Grain and oilseeds analyst, Andrick Payen, explained how the unfolding situation is affecting agricultural commodity markets and what this means for prices and trade flows going forward. He said the Iran War will impact three fundamental areas of agriculture: fertilizers, biofuel, and transportation — all of which obviously affect coffee and tea. Payen explained that key fertilizer exports move through the Strait of Hormuz so the closure will extend shipping times and costs as the ships are rerouted. And in terms of transportation, the higher energy costs will impact vessel, rail, and truck costs.

As the RBC Capital Markets and Rabobank analysts noted, the war in the Middle East is a fluid and fast-moving situation with an unknown end date. In the short term, energy costs are escalating and transportation costs will likely increase as well, but for the additional impacts on the supply chain, we are in a wait and see scenario.

• Vanessa L Facenda, editor, Tea & Coffee Trade Journal, [email protected]