Iran war triggers supply chain fears beyond covid disruption

Friday 24 - 09:40

By: Dakir Madiha

Iran war triggers supply chain fears beyond covid disruption

The war involving Iran is raising alarm across global supply chains, with companies warning that the disruption could exceed the impact of the COVID-19 crisis. A survey conducted by Allianz Trade across 6,000 firms in 13 countries shows that nearly two thirds expect further supply shocks driven by rising energy and raw material costs. Many businesses are accelerating plans to relocate production or shift suppliers closer to home to reduce exposure to geopolitical risk.

The disruption is rooted in a severe energy shock. The International Energy Agency described the situation as the largest oil supply disruption in market history. Attacks on infrastructure and the effective closure of the Strait of Hormuz led to a loss of 10.1 million barrels per day in March. Global liquefied natural gas supply dropped by around 20 percent, forcing Asian economies to compete directly with Europe for limited shipments. The chief executive of Saudi Aramco warned that the crisis could have severe consequences for global oil markets. The IEA now expects global oil demand to decline in 2026, marking the first contraction since 2020.

Shipping and insurance costs have surged, adding further strain. War risk insurance has become a major bottleneck after several leading maritime insurers withdrew coverage for vessels entering the Gulf region. Premiums have increased by more than 1,000 percent in some cases, with a single transit through the Strait of Hormuz costing tens of millions of dollars in insurance alone. The Lloyd's Market Association has expanded its high risk designation to cover the entire Persian Gulf. As a result, maritime traffic through the strait has fallen by about 95 percent, leaving hundreds of oil tankers waiting offshore.

The consequences extend far beyond energy markets. The region supplies roughly 45 percent of the world’s sulfur, a key component in fertilizers and mining, and about 9 percent of global aluminum. Disruptions to liquefied natural gas operations in Qatar and petrochemical outputs such as ethylene and methanol are affecting industries ranging from food packaging to textiles and cosmetics. The World Food Programme has warned that global food prices are likely to rise as supply constraints intensify.

Unlike the pandemic, which triggered a demand shock, the current crisis is driven by supply constraints concentrated in energy and raw materials. Analysts say the effects could take months or years to unwind, even if a peace agreement is reached soon, reinforcing concerns that global trade systems face a prolonged period of instability.