On June 13, Israeli military forces launched an airstrike against the Islamic Republic of Iran, targeting multiple military and nuclear facilities across the country. This prompted an escalation in tensions between the two countries, involving a series of missiles, airstrikes, and drone attacks on key infrastructure points. Though military and state facilities remain the primary targets, damage to civilian and commercial infrastructure has been reported on both sides.
At the time of reporting, 224 people have been killed in Iran, while 24 people have been killed in Israel. Concerns of supply chain disruptions are growing, as airspace remains restricted across the region, and a closure of the Strait of Hormuz is a possibility. Further, many oil facilities have been targets of strikes on both sides, prompting forecasts of global oil supply issues and price spikes to come.
Regional logistics disrupted by airspace closures and Strait of Hormuz diversions
On June 13, Israeli authorities promptly closed the country’s airspace and temporarily ceased operations at Ben Gurion International Airport near Tel Aviv. Though an expected timeline for the closures was not announced, many major airlines, including Lufthansa, SWISS, Austrian Airlines, Brussels Airlines, and Air France-KLM had preemptively halted flights to and from the airport out of concern for passenger and airline personnel safety. Thus, delays to air logistics in and out of the country are expected to persist beyond the actual disruption to airport operations.
Further, the escalating conflict has prompted other nearby countries to close their airspaces as well out of an abundance of caution. Syria and Lebanon both closed their respective airspaces for 24-hour on June 13 following Israel’s initial strike on Iran. Syria later closed its airspace for another 24-hour interval on June 16 amid the worsening situation. Bahrain-based Gulf Air had initially canceled its flights to and from Amman, Jordan, Baghdad and Basra, Iraq, and Baku, Azerbaijan on June 15 and 16. This suspension was later extended until June 27 as there are few signs of a prompt de-escalation.
Maritime freight has been impacted by the regional conflict as well, as carriers have begun diverting from the Strait of Hormuz. Though the Strait remains open for now, some ship owners have decided to steer clear of it amid uncertainty about the future of the conflict. The Strait is a vital entry point for containerships calling at the United Arab Emirates’ 19.3 million TEU-capacity Jebel Ali Port in Dubai and the 5 million TEU-capacity Khorfakkan Container Terminal in Sharjah.
The Strait of Hormuz is also the world’s most important oil chokepoint as it connects the Persian Gulf to the Arabian Sea, with daily oil flows through the waterway totaling one-fifth of global petroleum liquids consumption. Around 70% of this volume is bound for Asian markets, with China, India, and Japan among the largest recipients. Oil prices surged 13% following the start of the conflict and are expected to surpass USD 100 per barrel if the Strait of Hormuz closes to shipments. With limited ability to reroute shipments via pipeline or overland routes, oil markets are particularly exposed to disruption from a prolonged conflict.
Global energy market vulnerable to prolonged regional conflict
Airstrikes have damaged critical oil and gas facilities in both Israel and Iran. Infrastructure and equipment at Iran’s South Pars Gas Field were damaged after an Israeli strike on the facility on June 14, resulting in a partial suspension of production. South Pars is part the world’s largest natural gas reserve, shared between Iran and Qatar, and produces around 610 million m3 of natural gas per day, accounting for around 80% of Iran’s total gas output. Additionally, Tehran’s primary fuel depot and refinery was stuck by Israel on June 14, though authorities report that operations were not disrupted. The conflict is anticipated to have significant impact on Iran’s oil exports which are not already limited by global sanctions. Over 90% of the nation’s oil products are exported from the Kharg Island Port, which has been closed since June 13 and has not had any oil and gas tankers anchored there since June 16.
Impacts to Israel’s energy sector have also been reported. The Bazan Group suspended operations at its Haifa Oil Refinery, one of Israel’s two oil refineries, following an Iranian strike that damaged the facilities power station. Further, two of Israel’s three offshore natural gas fields, the Chevron-operated Leviathan field and Energean’s Karish field, were preemptively closed on June 13. These two facilities account for roughly two-thirds of the nation’s supply, with major implications for Israeli natural gas exports to Egypt and Jordan. Israel accounts for roughly 15-20% of Egypt’s natural gas consumption, much of which is used for the country’s fertilizer industry. On June 13, Egyptian fertilizer producers were forced to halt operations for an undetermined timeframe due to insufficient supplies from Israel.
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