Israel-Hamas Conflict, Geopolitical Tensions Strain Global Supply Chains

Maritime supply chains are the backbone of the global economy, with 80 per cent of global trade volume and over 70 per cent of its value transported by sea. Therefore, safeguarding maritime supply chains is crucial for global prosperity, making it essential to monitor potential threats.

The ongoing Israel-Hamas conflict has triggered significant disruptions to global supply chains. Attacks on commercial vessels have led many ships to avoid the Red Sea, opting instead for longer alternate routes. Before the attacks on 7 October 2023, the Suez Canal—accessible via the 30-kilometre Bab-el-Mandeb Strait—managed about 12 per cent of global trade. Since many carriers have begun rerouting their vessels around Africa, canal traffic has dropped by 66 per cent.

Additionally, political and diplomatic tensions have pressured Israel to seek alternative suppliers for essential materials, including iron, marble, steel, cement, aluminium, bricks, fertilisers and construction equipment, due to shifting trade relationships with certain partners.

Jitendra Srivastava, CEO of Triton Logistics and Maritime said that the primary concern stemming from the Iran-Israel conflict is the potential for disruption in key maritime chokepoints. Any escalation in hostilities could lead to disruptions in oil shipments, impacting global energy markets and driving up shipping costs, Srivastava added.

“Similarly, the Red Sea, another vital maritime route, could be affected by tensions between Iran and Israel, potentially impacting trade between Europe, Asia and Africa.​ These geopolitical tensions prompt businesses to reassess sourcing strategies and supply chain resilience, leading to a shift in supplier bases towards regions perceived as less susceptible to instability. Increased geopolitical tensions can also lead to delays and bottlenecks at ports and border crossings, disrupting the smooth flow of goods and adding to transit times and costs,” he said.

The severe congestion is​ forcing the logistics sector to slow down or reroute cargo, particularly for long-transiting reefer and perishable goods. The backlog of vessels, equipment imbalances and berthing delays at these critical ports are causing significant supply chain disruptions, adding several transit days to shipments.

​Srivastava believes that these geopolitical tensions prompt businesses to reassess sourcing strategies and supply chain resilience, leading to a shift in supplier bases towards regions perceived as less susceptible to instability. Increased geopolitical tensions can also lead to delays and bottlenecks at ports and border crossings, disrupting the smooth flow of goods and adding to transit times and costs.​

​The Iran-Israel conflict has broader implications for global trade patterns and supply chains.​ The increasing ocean freight rates have significantly impacted Indian trade. The high costs have strained exporters and importers, increased the prices of goods and made Indian exports less competitive globally. The surge in rates has been driven by a variety of factors, including increased global demand, congestion at ports, and a shortage of containers. This has led to higher logistics costs, affecting supply chains and overall trade volumes.

On the other hand, the Russian Invasion of Ukraine caused the Black Sea’s transformation into a conflict zone that has majorly disrupted global food security, as a large share of the world’s grains is shipped through this region.

Before the invasion, Ukraine was a significant exporter of wheat, corn, barley and sunflower oil. While the UN's Black Sea Grain Initiative helped maintain exports, its expiration in 2023 left Ukraine dependent on a unilateral "humanitarian corridor," which has faced disruptions from Russian attacks. These attacks have damaged Ukraine's port infrastructure and grain reserves, though shipping levels had largely recovered by mid-2024. The ongoing conflict leaves regional supply chains vulnerable to further disruptions, with both Ukraine and Russia showing the capacity to target commercial vessels.

Since late 2023, Houthi rebels have increased attacks on commercial vessels in the Red Sea, a critical passageway for the Suez Canal. As a result, traders face a difficult choice: risk using this route with heightened insurance premiums and limited insurance availability or take the longer route around the Cape of Good Hope, which incurs substantial costs and delays. Shipping companies, particularly those with high-value cargo, have begun to reroute, resulting in a significant drop in Suez Canal traffic. This rerouting has increased shipping times and costs, adding pressure to global inflation as supply chains adjust to these disruptions.