The Israel-Hamas war continues to escalate more than a week after a violent attack by the militant group into Israeli towns and villages around the Gaza Strip resulted in around 1,400 dead and more than 3,000 people injured. The incursion by Hamas on October 7 led to several days of intense fighting in at least 27 Israeli settlements across the region, with Israel’s Defense Forces confirming October 10 that it had re-secured its border with Gaza. More than 360,000 reservists representing 4% of Israel’s population were called up for military duty as the country’s authorities continue preparations for an expected ground operation into the Gaza Strip.
Conflict continues in areas in and around the Gaza Strip, and another front is threatening to open in Israel’s north where intermittent fighting has been taking place between Israel and Hezbollah. The risk of prolonged manufacturing impacts and disruptions at key transportation hubs is likely to grow in several parts of Israel in the coming weeks.
Israel continues to strike Gaza targets
Israel continues to target Hamas infrastructure within the Gaza Strip through a combination of air and artillery strikes. The bombardment is causing a humanitarian crisis with international agencies indicating that hospitals and living conditions in the region are at risk of collapsing.
Israel has also responded to the Hamas incursion by imposing a total blockade of the Gaza Strip, cutting off access to power, food, and water to most of the area’s residents. Additionally, Israeli authorities have warned more than 1 million residents of Gaza City and the rest of northern Gaza to re-locate to southern parts of the enclave in preparation for a ground operation into the Gaza Strip that could take place within the coming days. The UN has estimated that more than 500,000 Palestinians have been displaced from the region’s north because of the evacuations.
Meanwhile, Hamas continues to fire missiles into parts of Israel. The security situation at Israel’s northern border with Lebanon is deteriorating as the Israeli military engages in intermittent fighting and rocket exchanges with the Lebanese militant group Hezbollah. A closed zone has been established within 4 km (2 miles) of the Lebanese border due to rocket strikes, and the Israeli government has announced a plan to evacuate all civilians from towns located up to 2 km (1.5 miles) from the Lebanese border. This follows an October 15 incursion by Hezbollah fighters into the Israeli farming community of Shtula which raised fears that the militant group is considering entering the conflict.
Production disruptions expected for companies in closed military zones
The conflict has caused major production disruptions to companies located around the Gaza Strip as the Israeli military has established a closed military zone in the region to prevent further incursions by Hamas militants and to aid preparations for a possible ground assault of the enclave.
Plastics and packaging industry
The closed military zone covers 24 villages immediately around the Gaza Strip that were evacuated on October 8 including the kibbutzes of Nir Yitzhak, Magen, Be’eri and Zikim. Everstream Analytics has identified at least 16 notable manufacturers that had operations in the evacuated villages with most of these companies belonging to the plastics manufacturing and industrial packaging sectors.
Food and beverage industry
The closed military zone also covers several major towns in the region including Netivot, Sderot, and the southern industrial zone of Ashkelon. The five industrial parks located in these three cities are home to around 800 companies from a variety of sectors including the manufacturing, food and beverage, and electronics industries
Semiconductors, technology, and pharmaceuticals
There are several notable industrial regions further away from the Gaza Strip that remain at risk from disruptions should the conflict escalate. For example, the city of Be’er Sheva in the Negev desert is a key technology hub. Chipmaker Intel Corporation has a major semiconductor fabrication plant located in the nearby city of Kiryat Gat and the city of Ashkelon is also home to aerospace and defense systems manufacturer Ashot Ashkelon Industries Ltd.
Raw materials supply
Beyond semi-finished and finished components and products, Israel is also a major supplier of bromine, a raw material used in food and beverage making, pharmaceuticals, textile making, oil and gas production, and construction. According to an estimate by the U.S. Geological Survey, Israel was the biggest supplier of the raw material globally in 2022, accounting for around 180,000 metric tons of supply, with ICL Group, one of the world’s biggest producers, based in Tel Aviv and Be’er Sheva.
Although no direct impacts have been reported on bromine production at the time of writing, operations could be disrupted in the coming weeks if transport routes are cut off or operations have to be scaled back due to a lack of workers. With some producers located closer to the Gaza Strip, the threat of rocket fire and subsequent physical damages to facilities also remains a risk for several producers in the industry.
Lastly, in the north of Israel, production disruptions also remain possible along the country’s border with Lebanon, an area that was declared a closed military zone on October 15. Many production facilities and industrial zones are not yet within the military zone. But if fighting in this region continues, operational disruptions are likely to hit manufacturers located close to the border, including in medical devices, pharmaceuticals, electronics, and chemicals.
Air and ocean transport remain disrupted as conflict continues
The Ben Gurion International Airport in Tel Aviv, the country’s main international airport, continues to operate, although flights in and out of Israel declined in the days following the Hamas incursion into Israel. The air freight sector has seen a slight improvement in recent days as some carriers resumed services.
Nevertheless, the situation in the air freight sector is still tense as major international airlines continue to adjust flight schedules on short notice according to their own security assessments, or have even chosen to suspend operations for weeks and months due to security concerns.
A week into the conflict, 23% and 13% of flights were still cancelled in Tel Aviv on Saturday and Sunday, according to a U.S.-based flight tracker. Even if operations at the Ben Gurion International Airport continue without interruption, the backlog of air freight shipments at the airport’s facilities is likely to grow in the coming weeks if the number of flights remains limited for a prolonged amount of time.
A backlog has also been growing at some of Israel’s major seaports since the fighting broke out over a week ago. The Port of Ashkelon, the country’s biggest oil port was closed for ships within days and remains shut until further notice as Hamas continues to fire rockets at the surrounding city.
At the Port of Ashdod, Mediterranean Shipping Company S.A. has confirmed that waiting times are on the rise due to labor shortages and additional security measures implemented in response to the crisis. Limits have also been placed on the shipment of hazardous goods in Ashdod, including explosives and toxic cargoes, with some cargo banned completely while other goods remain subject to approval on a case-by-case basis.
Lastly, operations at the Port of Haifa further north have been running at full capacity for days to process and unload as many ships as possible, including those diverted from Ashdod in recent days. Nevertheless, the number of ships waiting at the port has been growing, with several dry bulk ships waiting outside the port on October 15. In addition to longer waiting times and more processing delays, shipping operators could face tens of thousands of dollars of additional insurance costs for sending ships to Israel. Within days after the conflict broke out, insurance premiums reportedly spiked to up to 0.2 % of a ship’s value, up from around 0.0125% earlier this year as security concerns rose following the attack by Hamas and Israel’s subsequent airstrikes on the Gaza Strip.
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