The Procurement Impact in Wake of Hormuz Closure

The intensification of military engagement involving the United States, Israel and Iran has triggered an immediate crisis across global supply chains.

The effective closure of the Strait of Hormuz is creating unprecedented disruptions to maritime trade, air cargo and critical industries worldwide.

Reports from the region indicate the Islamic Revolutionary Guard Corps has issued radio warnings prohibiting vessel passage through the strait.

This has reportedly trapped nearly 170 container ships and halted movement of 20% of the world's seaborne oil supply.

“The speed and scope of escalation in the Middle East will have taken many businesses by surprise and has highlighted just how unstable the region can become in as little as 48 hours,” says Simon Geale, EVP at Proxima.

"What will concern companies is that we may just be at the start of a prolonged conflict and there may be much more to come in terms of the impact on global supply chains."

Disruption to maritime logistics

Analysis by Pole Star Global regarding 3,878 vessel zone events in the Persian Gulf during the seven-day period surrounding 28 February 2024 has revealed dramatic shifts in maritime activity.

Traffic surged 162% on the day of operations. However, Iranian-flagged vessels showed a marked reduction in activity following military operations.

Arsenio Dominguez, Secretary-General of the International Maritime Organization (IMO), issued a statement: “No attack on innocent seafarers or civilian shipping is ever justified. These crews are simply doing their jobs and must be protected from the effects of wider geopolitical tensions.”

The IMO is urging shipping companies to exercise maximum caution.

Major shipping lines have responded to the crisis. Maersk announced suspension of all vessel crossings through the Strait of Hormuz, stating it is rerouting services around the Cape of Good Hope.

Hapag-Lloyd suspended all transits citing official closures, while MSC has instructed vessels currently operating in the Gulf region to proceed to designated safe shelter areas.

The diversions around Africa add approximately 3,500 nautical miles and roughly US$1m in fuel costs per voyage.

Operations at Jebel Ali Port were temporarily suspended following a fire caused by debris from an aerial interception, though operations resumed after safety assessments.

Linerlytica estimates approximately 450,000 twenty-foot equivalent units (TEU) of containers remain stuck inside the Gulf.

Air freight and energy challenges

The conflict has impacted air freight capacity, with data from consultancy Rotate showing global air cargo capacity down 18% from the previous week.

Emirates SkyCargo suspended flights until 15:00 UAE time on 2 March 2024 and placed temporary restrictions on booking new shipments.

FedEx has suspended flights to and from regional destinations including Bahrain, Iran, Israel, Jordan, Kuwait, Lebanon and Saudi Arabia.

The company stated: “The safety and well-being of our team members is our highest priority.”

Other carriers including Qatar Airways, Cathay Group and Etihad Airlines have halted or suspended specific operations in the region.

In the energy sector, Saudi Aramco shut its Ras Tanura refinery following drone attacks on 2 March 2024. This facility is one of the Middle East's largest refineries.

Sam Coyne, CEO Europe at Currenxie, comments: “Rising oil prices might grab the headlines but escalation across the Middle East will result in price hikes across all industry supply chains.

"The crippling of key trade routes will prolong uncertainty and continue to drive up supply costs, squeezing merchant margins ever further and ultimately leading to a spike in the cost of consumer goods and surging inflation.”

Sam adds: “Research published in late 2023 from the Chartered Institute of Procurement and Supply (CIPS) warned in late 2023 that due to rising costs of transport, energy and raw materials, consumer goods prices could soar during 2026.

"The events over the weekend are likely to make such forecasts inevitable and global businesses and consumers will rightly be hugely concerned of the longer-term impact on supply chain costs and the price of products on the shelves."

Wider industrial supply implications

Healthcare sectors face potential supply challenges for generics and Active Pharmaceutical Ingredients from India, as air freight costs have spiked 400% in 48 hours.

Technology supply chains for microchips and electric vehicle (EV) batteries designated for 2026 production are reportedly stranded in the Gulf.

Disruption to the Strait of Hormuz also threatens nitrogen fertiliser exports, which could impact crop yields in South Asia and Latin America.

Rafael Grossi, Director General of the International Atomic Energy Agency (IAEA), warned that mass evacuation of cities across the Middle East may become necessary if civil nuclear power stations are attacked.

Rafael stated: “We cannot rule out a possible radiological release with serious consequences, including the necessity to evacuate areas as large or larger than major cities. We therefore urge utmost restraint in all military operations.”

Construction projects such as NEOM’s The Line could face delays as deliveries of Chinese structural steel stall due to harbour disruptions.

Tiemen Meester, COO at DP World, emphasised: “The Middle East is a vital trade route... our focus is on providing superior infrastructure and security to ensure the global supply chain can thrive even in a volatile environment.”

Maritime authorities advise vessels to maintain a minimum 30 nautical mile standoff from US military vessels due to potential retaliatory action.

Simon emphasised the uncertainty ahead: “Just what does happen next now depends on the intentions and actions of several actors and the composition of the next Iranian regime.

"But for businesses, there is a need to enact contingency plans immediately and begin working through the implications of this conflict lasting weeks or months, rather than days.”