The Impacts of the Iran Attack on Supply Chains and Global Business
The attack on Iran by U.S. and Israeli forces on Saturday and subsequent retaliatory actions have added to continuing disruptions and uncertainty felt by supply chains all over the world — further impacting lead times, supply availability, shipping routes and likely company revenues.
“Crises in areas such as transportation, energy, supplier sources, security, and supply and demand are growing exponentially,” says Jim Fleming, CPSM, CPSD, Manager, Product Development and Innovation at Institute for Supply Management® (ISM®).
During a disruption, according to research from advisory services firm Gartner, nearly two-thirds of companies expect to lose revenue, as supply chains experience a 40-percent surge in cost-to-serve post-disruption on average.
To weather the situation, risk management continues to be mission-critical for supply management organizations, Fleming says. Greater visibility into end-to-end supply chains, sourcing closer to home, and scenario and resilience planning are crucial.
Oil and Natural Gas
Of immediate concern for many is what the attack means on energy and fuel costs. Iran has effectively closed off the Strait of Hormuz — the only way in and out of the Persian Gulf — which will impact oil, natural gas and gasoline prices.
U.S. crude oil prices have jumped more than 7 percent while the international oil benchmark (Brent) has gone up 9 percent. “This will drive prices up more than they already have been,” says Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.
This follows the 17-percent increase in oil prices since the first of the year. “Obviously, we will see an impact at the pump — as retail gas moves 2.5 cents for every US$1 increase in the price of crude oil — but at this point, experts are saying that if the war is not prolonged it should not be a major inflationary hit,” Spence says.
The Strait of Hormuz is, KPMG US energy strategy leader Angie Gildea says, “the most critical pressure point in global energy markets. Any sustained disruption to Hormuz translates directly into a higher oil price environment. There are buffers — strategic reserves, rerouted cargoes, elevated floating inventories — but those are stopgaps.”
She continues: “This is a supply shock with an uncertain timeline when the critical variable is duration. Businesses should be stress testing for both short and long-term disruption.”
David Gonzalez, VP analyst at Gartner’s supply chain practice, doesn’t expect oil and natural gas prices to skyrocket, saying, “Iran generates around 4 percent of global oil production and 6 percent of natural gas, not insignificant by any means, but not large enough to substantially move the needle on price. Yes, we saw some movement in the price of oil (Monday), but that was to be expected following the tumultuous events of the past couple of days.”
OPEC+, a consortium of OPEC members and nonmember oil-producing nations, has agreed to a modest increase in oil output — 206,000 barrels per day — for April, because of the disruption, he added.
A more significant impact to the closure of the Strait of Hormuz, Gonzalez says, is the impact to ocean container traffic headed for Persian Gulf ports such as Jebel Ali, Khalifa and Dammam. “These are critical in the supply of consumer goods and materials headed for the UAE, Bahrain, Qatar and Kuwait,” he says. “Shipping lines such as CMA CGM and Hapag-Lloyd have announced an embargo on these ports as they are refusing to sail through the Straits; other shipping lines will follow their lead.”
Shipping, Lead Times and Supply Availability
Still, many industries won’t immediately be impacted by the Strait of Hormuz situation, according to Ashley Hetrick, sourcing and supply chain principal at professional services firm BDO USA. She says, “Therefore, the impact on many manufacturers and retailers may feel muted, as lower order volumes give carriers and shippers room to absorb delays.”
The concern for most manufacturers, Hetrick says, is likely to be one of the three:
1) Where do they have dependencies on items, like petrochemical byproducts, that are produced out of or shipped through Hormuz?
2) What will be the impact on shipments that are now routing around the Cape of Good Hope to avoid the Red Sea and the Suez Canal? Rerouting around Africa can add up to two weeks to transit times.
3) What downstream impact will Hormuz disruptions and longer vessel trips around Africa have on overall vessel capacity?
The area has been a source for shipping concern for years. Spence says an ISM Manufacturing Business Survey panelist in Transportation Equipment cited the Suez Canal and Red Sea conflict as a source of driving up cost and transit time — prior to the attack on Iran.
“Geopolitical risk, especially in the Middle East, as it pertains to commodity and energy markets remains a concern and is being monitored by the business,” the panelist wrote. “(We also have) risk concerns pertaining to increased cost and transit time for rerouted shipments due to conflict in the Red Sea and Suez Canal. These conditions are being monitored by the business, and rerouting measures have been implemented where possible.”
Peter Sand, chief analyst at Xeneta, the Oslo, Norway-based digital freight platform, said in a statement that the repercussions of the joint military operation by the U.S. and Israel against Iran and subsequent retaliatory action will result in “further weaponization of trade and shatter hopes of a large-scale return of container shipping to the Red Sea in 2026.” Until recent months, he added, many carriers had been sailing around Cape of Good Hope due to attacks by Iran-backed Houthi militia.
As it seems likely those attacks will be resumed, he said, carriers will reverse the decision to return services to the Red Sea and prioritize the safety of crew, ship and cargo. Any plans for a phased return of container shipping to the Red Sea in 2026 will be shelved until the security situation becomes clearer, the statement said.
Since the beginning of the year, average spot rates from China to the U.S. East and West coasts are down 32 percent and 35 percent, respectively, Sand said, while those from China to North Europe and Mediterranean have decreased 23 percent and 33 percent.
“With a large-scale return of container ships to Red Sea in 2026 now unlikely, freight rates on major global trades will continue to soften but will not fall as hard as previously expected in the second half of the year as more services returned to Suez Canal transits,” Sand said.
Compared to before the Red Sea crisis began in December 2023, average spot rates to north Europe and the Mediterranean from China — which are, Sand said, “the two trades most operationally impacted by the diversions around Cape of Good Hope — are still up 48 percent and 79 percent, respectively.”
Services Sector Impact
Many companies in the services sector will feel little direct impact from the situation, says Steve Miller, CPSM, CSCP, Chair of the ISM Services Business Survey Committee. But others may be more heavily hit, particularly those in the Construction, Finance & Insurance, Mining, Transportation & Warehousing and Wholesale Trade industries. Impacts may also extend to Retail Trade, he says.
Among the impacted dynamics:
Shipping. For Transportation & Warehousing businesses, the disruption will depend on where their primary ocean routes are, Miller says.
“Those not in the affected regions will have similar pricing opportunities that they implemented during the coronavirus pandemic, with container prices escalating significantly,” he says. “Those with assets in the region will have the additional costs to move those assets as well as the additional time and cost impacts for having to run alternative routes.” Due to longer transit times, more assets will be required to move the same freight — assets likely priced at a premium — and additional security costs.
Planning a work trip or vacation? “For airlines, international travel just got a lot riskier,” Miller says. “Insurance costs as will security costs will increase, while travel frequency by many travelers concerned with potential flying risks will drop significantly while the conflict remains in the daily news cycle.”
Construction and mining. Materials like cement, concrete, steel and aluminum as well as clay, sand and stone are produced in the Middle East, and production and transport costs will increase significantly if this is a prolonged conflict, Miller says.
“For some mining activities, the conflict will cause mandatory service disruptions to guarantee employee safety,” he says. “Given the pressure there has been on the construction industry, other than those servicing utilities, it is possible that inventories for these materials could be very tight, leading to decisions by builders to use alternative materials or delaying build schedules.”
Consumer goods. Textile, jewelry and food products like nuts, olive oil and spices are among the consumer goods are imported from the Middle East. “The conflict could put a significant squeeze on specialty items, but I don’t expect it will have a significant impact on consumer staples,” Miller says. “These will cause minor downward pressure on the Retail Trade and Agriculture, Forestry, Fishing & Hunting industries.”
Utilities that depend on petroleum products to produce the energy that they provide their customers will see their costs of operation go up substantially, Miller says. “War is typically a situation that allows suppliers to renege on their sales agreements, and I expect that oil companies will use this situation to charge a war premium on their products, regardless of where they are based,” he says.
Other services-related businesses. “For the rest, it will be those with exposure to services companies based in the Middle East, like IT and outsourced services providers, and everyone who has a significant energy need,” Miller says. “We already saw oil prices spike (on Monday), and it is unlikely that Venezuelan petroleum capacity will be able to be brought into the market quickly enough to offset the impact in the short term.”
Strategies to Minimize Risk
Supply management organizations can also expect increases to costs and base rates, insurance premiums and surcharges, Gonzalez says.
Tried-and-true methods might not be beneficial in periods of significant volatility and risk, Hetrick says, in part because the old resilience playbook of alternate suppliers and blanket inventory increases is simply too slow and too expensive.
“Companies with true SKU‑ and business‑line profitability visibility will have a clear advantage during this period of disruption,” she says. “When shipping, insurance and lead times spike, they can make fast, confident decisions about what to prioritize, what to delay, and what no longer makes economic sense — while others are forced to react blindly.”
To react at the speed needed to address emerging supply chain disruptions like the Iran attack, Fleming adds, companies must leverage risk management solutions. Those that have made investments in operational agility will have both short- and long-term advantage, as they are able to quickly pivot while minimizing impact on their bottom lines, Hetrick says.
Examples of such investments include:
- Multitier supplier visibility platforms
- Control towers that provide near-real-time insights into supply, demand, inventory, and logistics
- Modular bill of materials (BOMs) that allow for component substitution
- Flexible manufacturing footprints that allow pivots to alternate production locations
Shifting to an operating model with worst-case scenario planning, Hetrick says, will allow manufacturers to (1) prioritize mitigation activities on revenue- and service-critical goods flows, (2) determine when and where to hold shipments at origin points to avoid losses and/or costly delays and (3) communicate revised service expectations to customers.
In a statement, Gartner advised organizations to:
- Coordinate with the C-suite and communicate response strategies, especially in areas related to transportation and logistics
- Implement logistics workarounds through alternate carriers and routes, and seek solutions with existing carriers
- Complete a budget review with the CFO using what-if scenarios
- Conduct a risk assessment to learn short- and long-term effects.
As with many disruptions, there is no crystal ball. “If it’s a war of attrition, this entire year will be disrupted and volatile,” Gonzalez says. ”If it’s over in a couple of weeks, we should be back to (transportation) normal in a couple of months.”
(Image credit: Getty Images/Ruma Aktar)