As the war between Iran, Israel, and the U.S. approaches the 2-week mark, military strikes have continued unabated across the Middle East. U.S. and Israeli forces carried out military strikes against targets in Iran, with Israel also keeping up a campaign targeting sites in Lebanon allegedly linked to Hezbollah, while Iran launched retaliatory attacks on targets in Israel and several of the Gulf countries, including Kuwait, Bahrain, Saudi Arabia, and the United Arab Emirates. Iranian forces have also stepped up attacks on civilian infrastructure and transport networks in the region in recent days, targeting six merchant vessels in the Persian Gulf in just two days as well as the Kuwait International Airport (KWI) and Dubai International Airport (DXB), two major air transport hubs in the region.
In his first public comments since his appointment on the weekend, Iran’s new Supreme Leader, Ayatollah Mojtaba Khamenei, has vowed to keep the Strait of Hormuz shut for shipping traffic and showed no sign of backing down amid the conflict with the U.S. and Israel. More than 1,300 people have reportedly died in Iran, and more than 600 people were killed in Lebanon, while the death toll of American service members has climbed to seven, with around 150 military personnel sustaining injuries.
Energy market disruptions deepen as shipping through Strait of Hormuz remains halted
As Iran increasingly targets merchant vessels in the region, shipping traffic through the Strait of Hormuz remains all but halted. A growing number of countries have been forced to cut their domestic oil output as a result of the transport disruptions, including Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates. Collective oil production in these countries has dropped by around 6.7 million barrels per day (bpd), decreasing total global oil output by roughly 6% as of March 10.
Saudi Arabia is reportedly trying to ramp up flows of crude through its East-West pipeline network, which can carry crude supply from the Persian Gulf to export terminals located on the Red Sea. The pipeline network moved around 2.8 bpd before the conflict started, but state-owned Saudi Arabian Oil Company (Saudi Aramco), one of the world’s largest oil and gas companies, is now getting closer to transporting seven million bpd through it, the pipeline’s full capacity, to get around the Strait of Hormuz.
Roughly two million would go to refineries in Saudi Arabia, while the remaining five million barrels could be exported to customers abroad once the pipeline reaches its full capacity. As of March 10, at least 25 – 30 so-called super tankers, crude carriers capable of carrying around two million barrels of oil each, were reported to be on the way to Saudi Arabia’s Red Sea port in Yanbu to pick up cargoes.
The Abu Dhabi Crude Oil Pipeline (ADCOP) in the United Arab Emirates, which can transport up to 1.8 bpd from Habshan in Abu Dhabi to a port in Fujairah on the Gulf of Oman, was already carrying around 1.1 bpd before the conflict broke out, limiting the additional amount of crude the country could export via its pipeline network to avoid sending shipments through the Strait of Hormuz.
In response to the energy market disruptions, members of the International Energy Agency (IEA) agreed on March 11 to release around 400 million barrels of oil into the global market, one of the biggest release of emergency oil reserves in history, while the U.S. Government announced plans to release around 172 barrels of oil from the country’s strategic petroleum reserve.
Energy supply disruptions threaten daily life and production activities outside of the Middle East
Despite these countermeasures, the impact of energy supply disruptions continues to spread, particularly in parts of Asia, where many countries rely heavily on crude, gas and fuel imports from the Middle East. Several Asian governments have already announced restrictions on fuel usage to avoid domestic supply shortages.
In China, authorities have instructed refineries to temporarily suspend exports of refined fuels such as gasoline, diesel, and jet fuel to prioritize domestic supply. The export halt applies to cargoes that had not cleared customs by March 11.
The Government of Vietnam has reduced import tariffs on some petroleum products and instructed domestic producers that oil not yet earmarked for export must now be sold to refineries in Vietnam. Officials in India have used emergency powers to redirect liquefied petroleum gas to households instead of industrial users. In Thailand, Pakistan and the Philippines, government authorities have introduced work-from-home mandates or reduced the work week to conserve energy supply. The Philippines are also considering buying oil supply from countries in the Americas, Africa or Australia to reduce its dependence on imports from the Middle East, while Vietnam is looking into buying crude oil from Venezuela.
Impacts of production activities have also continued to spread amid energy supply shortages and delays in the delivery of crucial raw materials from the Middle East. According to data tracked by Everstream Analytics, dozens of companies have now been forced to declare force majeure on the supply of at least some of their own products, with the majority of the affected companies located in Asia. Other companies in the region have also warned that they may be forced to declare force majeure in the near future if business disruptions caused by the conflict persist, including China-based Shandong Longhua New Material Co., Ltd., as well as South Korea-based Hanwha Solutions Corporation and Lotte Chemical Corporation.
While the majority of business disruptions appear to be concentrated across Asia and the Middle East two weeks into the conflict, operational disruptions could soon hit more companies in other parts of the world. Not only is the impact of energy and raw materials supply shortages as well as rising energy prices likely to worsen in other regions of the world the longer the conflict persists, the Iranian state and its proxies could also step up cyber-related attacks on companies and infrastructure linked to countries considered adversaries by Iranian officials.
In the highest profile incident since the outbreak of the war, a hacking group linked to Iran claimed responsibility for a cyber-attack on Stryker Corporation, a United States-based medical technology company, on March 11. The company has since confirmed in a filing with the United States Securities and Exchange Commission (SEC) that the incident caused operational disruptions and restricted access to some of its systems. While the number of impactful cyber-related disruptions caused by Iran or its proxies has been limited so far, the risk of cyber-attacks will remain high given that cyber campaigns may offer the Iranian government a relatively low cost, lower risk way of extending targeted attacks within and outside of the Middle East to increase political pressure on the U.S. and Israel.
Everstream clients are receiving more detailed insights and recommendations about this risk.
Don’t miss key supply chain risk updates! Subscribe now to get supply chain news, weather updates, forecasts, and other insights.