Rising US-Iran Tensions and Their Impact on Global Trade

The ongoing conflict between the United States and Iran has escalated to a point where global trade routes face significant disruptions, particularly in the Strait of Hormuz. This critical chokepoint plays a vital role in energy shipments worldwide. We caught up with Sarah Jinhui Wu, a Professor of Operations Management at Fordham University’s Gabelli School of Business, to explore how instability in this region could affect shipping networks, energy prices, and global supply chains.

Impact of Uncertainty on Supply Chains

Supply Chain 24/7: What signs of uncertainty are already appearing in global supply chains due to the US-Iran conflict?

Wu: Uncertainty often manifests as supply chain variability, which can disrupt the efficiency of lean systems. For example, shipping lead times become unreliable as carriers may slow down, reroute, or pause sailings; schedules become less trustworthy. This situation necessitates increased buffers to manage risks, prompting firms to shift their focus from cost optimization to ensuring continuity. As a result, we may observe more expedited shipping, increased safety stock on essential SKUs, and a trend towards multi-sourcing, especially for energy- and chemical-dependent products.

Surging Energy Prices

SC247: Why are rising oil prices and unstable energy markets a direct consequence of Middle Eastern conflicts?

Wu: There are two main factors driving up costs for fuel and freight. First, the conflict in the Gulf compromises supply continuity, creating energy price shocks as oil and gas markets reflect scarcity and risk. The Strait of Hormuz is crucial for global energy, with around 20 million barrels per day (approximately 20% of global petroleum liquids consumption) passing through it. Even a partial disruption can rapidly change price expectations. Secondly, emergency or conflict surcharges from carriers exacerbate logistics costs. Rerouting increases travel distance and time, limiting vessel and aircraft availability, which leads to higher freight rates.

Broader Effects on the Economy

SC247: Which everyday products or industries are now feeling the repercussions of this conflict?

Wu: Almost all sectors feel the heat since energy serves as a crucial input for numerous products. Industries that are notably dependent on energy include plastics, packaging, and consumer goods relying on petrochemical feedstocks. Additionally, food and grocery sectors face rising costs linked to fertilizers and diesel for farming, processing, and transportation. Manufacturing sectors with energy-intensive processes—such as cement, glass, and metals—are similarly affected. The airline industry is also experiencing significant disruption due to the escalating tensions between the U.S., Israel, and Iran, with thousands of flights canceled and key Gulf airspace closures causing major operational headaches.

Challenges in Shipping and Logistics

SC247: What challenges arise for shipping and logistics when trade routes like the Strait of Hormuz are avoided?

Wu: Avoiding a chokepoint results in delays and creates a cascading effect throughout the network. Longer transit times and missed connections emerge, which lead to a capacity squeeze—longer routes enable vessels to complete fewer voyages. Moreover, the imbalance of containers and chassis causes localized shortages and incurs additional repositioning costs. Insurance companies may raise premiums, impose tighter terms, or even refuse coverage, resulting in last-minute carrier switches.

Consumer Implications

SC247: How quickly could U.S. consumers see the impact of this conflict on their wallets?

Wu: Gas prices tend to react swiftly, often within days of emerging risks to crude oil supply. Fuel markets quickly adjust their expectations, reflecting these risks. For goods available on store shelves, the impact depends on the inventory cycle—usually lasting a few weeks to a couple of months based on existing inventory levels, product origin (domestic vs. imported), and whether freight is secured via contracts or purchased on the spot market, the latter permitting quicker price adjustments.

Future Risks for Supply Chain Leaders

SC247: What are the biggest risks that supply chain leaders should monitor if this conflict persists?

Wu: Here are the paramount concerns supply chain leaders should keep an eye on:

1. Duration and degree of any disruption in Hormuz, as this node heavily influences oil and LNG flows.
2. Insurance availability and war-risk pricing, which could become a constraint before physical capacity becomes an issue.
3. Contagion effects spreading to other shipping lanes, causing rate spikes, equipment shortages, and port congestion, which could spread inflation beyond just energy.

The crux of the matter extends beyond just rising short-term costs; it is about dependency on reliability. When that reliability dips, every supply chain must invest in resilience, and this resilience demands redundancy, buffers, or flexibility, all of which contribute to overall increased costs.

Sarah Jinhui Wu is a Professor of Operations Management at Fordham University.