In Charts: How The Iran Conflict is Disrupting Global Trade
(Bloomberg) -- In the evening of March 1, an oil tanker turned off its transponder about 25 kilometers (15 miles) east of the emirate of Sharjah and disappeared into the murk of jammed signals over the Strait of Hormuz, the narrow chokepoint that separates the Persian Gulf from the open ocean. Ten hours later, its transponder winked back into life due north of Abu Dhabi, heading for Bahrain.
Only a handful of ships have made the run through the straits since last Saturday, when the US and Israel launched an air assault against Iran. Tehran retaliated, firing drones and missiles at targets across the Gulf. A Bloomberg analysis of shipping data from March 1-March 6 shows that traffic of merchant ships around the Strait of Hormuz has dropped more than 85% compared to the same period last year; about a fifth of these transits appear be under automatic identification system blackouts.
A week into the conflict, the impact on global trade is already significant, with major disruptions to shipping and air traffic reverberating through markets and pushing up prices for gasoline and fertilizer. More upheaval is likely, as the effects of attacks and shutdowns at some of the world’s busiest logistics hubs trickle through the global trade system.
The United Arab Emirates and Qatar are focal points for maritime and air freight, handling large volumes of goods in transshipment between Asia, Europe and Africa through ports, free zones and small cities of warehouses around the airports. Close to Dubai’s airport, which in normal times handles more than 1,000 flights per day, is the International Humanitarian City, a free zone for international aid supplies, and hubs for the World Health Organization and other agencies.
“It’s quite unique because it’s hitting a maritime chokepoint, but also an intermodal transport hub,” said Sarah Schiffling, assistant professor of supply chain management and social responsibility at the Hanken School of Economics in Finland. “The problem with a hub and spoke system is that if something disrupts your hub, the whole network is disrupted.”
By Wednesday, more than 27,000 scheduled flights had been canceled across the region, leaving passengers and cargo stranded — although airlines, including Emirates, are resuming operations.
A substantial proportion of all air freight travels as belly cargo in passenger planes, and while total volumes are far smaller than shipping, planes typically carry high-value goods, perishable items that can’t always survive being stuck in transit such as food, flowers and pharmaceuticals, and other time-critical products. The collapse of passenger air traffic during the Covid-19 pandemic reduced the amount of capacity, leading to spikes in the price of air freight.
The most visible market impact of the conflict has been on the price of energy. Around 20% of the world’s supply of oil and liquefied natural gas flows through the Strait of Hormuz. Oil and gas production facilities across the region have been hit by drone and missile strikes. Energy exporters are looking for alternative routes out of the Gulf, and several have shut down refineries as storage facilities fill up.
Brent crude hit $90 a barrel for the first time in two years on March 6, while LNG prices topped three-year highs during the week. If the conflict goes on for much longer — and US President Donald Trump said Friday that he would accept nothing short of “unconditional surrender” — then some analysts are predicting the price could go above $100.
Concerns about the impact of higher prices on the world economy have roiled markets, and raised prices at the pump in the US, leaving the administration searching for ways to deal with the domestic blowback.
Higher energy prices will feed into higher costs for consumers and industries — particularly agriculture. Around a third of global fertilizer trade passes through the Strait of Hormuz, while natural gas is crucial to the manufacture of inputs used by farmers globally.
Fertilizer producers worldwide have cut production, and prices have already risen. Farmers have rushed to secure supplies ahead of critical growing seasons.
A prolonged conflict could have severe impacts, as producers cut back on their fertilizer use, reducing yields. That would be acutely felt in less wealthy countries, where shortages could lead to humanitarian disasters, according to Tim Benton, professor at Leeds University in the UK and an expert in food security. If shortages lead to farmers not using fertilizers ahead of the next growing season, “then you could be in a situation where the impacts on crop production in six months’ time in the southern growing season next year could be very marked,” Benton said.
Analysts told Bloomberg that no matter how much longer the war continues, the impacts will be profound and long-lasting, with hard-to-foresee consequences. Rising energy costs in Asia, which is the destination for much of the Gulf’s energy exports, could feed back into consumer goods prices in Europe; delays to ships could increase inventory costs or disrupt manufacturing.
“Your own company might not be affected but your supplier’s supplier’s supplier might be,” Schiffling said. “Disruptions are going to ripple globally because supply chains are global.”
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