How conflict reshapes global supply chains
When armed conflict escalates and naval passages tighten, international trade does not come to a stop. Cargo vessels adjust, reroute, and absorb new costs that often appear later on.
Recent tensions in the Middle East show how fast conflict can affect shipping lanes and energy flows. Traffic through the Strait of Hormuz fell after military strikes hit parts of the region.
The waterway serves as a key passage linking Gulf producers to buyers across the world. A large share of exports from the Gulf Cooperation Council (GCC) consists of crude oil, refined products, and gas. These shipments account for more than 60% of GCC exports and about 25% of global energy trade.
During the 2023 to 2024 disruption period, freight rates climbed sharply at certain points, rising as much as eight times their usual levels. The increase came as available vessel space tightened and companies rerouted cargo to avoid high-risk areas.
The Suez Canal saw its own share of disruption during periods of unrest. The canal handles more than 50% of global container shipping capacity, making it one of the busiest trade corridors in the world. When security risks increased, major shipping companies reduced or paused their sailings through the route.
Higher freight rates and longer delivery times ripple through supply chains. Over time, those costs can appear in the prices that consumers pay.
Pressures Amid Conflict
A report from Oxford Economics shows how conflict places logistics systems under stress, especially when key facilities that support oil, gas and industrial production are affected. Ports, processing plants and export terminals depend on coordinated shipping routes, specialized vessels and large-scale transport systems. When these are disrupted, the impact spreads quickly across supply chains.
When facilities are damaged, reconstruction work competes directly with commercial shipping, especially in sectors tied to heavy industry. Moving large equipment and materials has become more difficult as transport resources are redirected to rebuilding damaged infrastructure. Delays have become more common as supply chains struggle to balance both needs.
Estimates from Oslo-based energy intelligence company Rystad Energy place repair costs for energy infrastructure at $34 billion to $58 billion. Oil and gas facilities account for up to $50 billion of that amount, while non-hydrocarbon infrastructure such as power stations, steel plants and desalination facilities make up about $8 billion.
The effects, meanwhile, are not limited to reconstruction costs. Shipping delays, contractor shortages and bottlenecks in logistics networks are slowing project timelines. Many contractors and fabrication yards needed for repairs are already tied to liquefied natural gas and offshore projects approved since 2023, which limits how fast damaged facilities can be restored.
Karen Satwani, a senior analyst for supply chain research at Rystad Energy, said repair work redirects existing industrial capacity instead of adding new supply.
“Repair work does not create new capacity, it redirects existing capacity, and that redirection will be felt in project delays and inflation far beyond the Middle East,” she said in a statement. “The $58-billion bill is the headline, but the knock-on effects on energy investment timelines globally may prove just as significant.”
A report published by the Journal of Petroleum Technology said capital diverted toward reconstruction reduces resources available for new projects. That constraint delays timelines and may slow the pace at which new energy supply enters the market in multiple regions.
Air freight is facing similar challenges. Restrictions in Gulf airspace have reduced available capacity, affecting major carriers such as Emirates, Qatar Airways and Etihad Airways. Together, these airlines account for about 13% of global air freight capacity and roughly one-quarter of China-Europe air cargo flows. Reduced access to this airspace disrupts established routes and adds pressure on remaining capacity.
High-value goods such as electronics, pharmaceuticals and perishable items are among the most affected. These products rely on fast and predictable air transport, making them more sensitive to delays and route changes.
Furthermore, oil prices are expected to spike as conflict persists. Fuel accounts for about 30% to 40% of vessel operating expenses, meaning any sustained increase in oil prices feeds directly into shipping costs. Even without further disruptions, higher fuel costs alone can raise the price of moving goods across global routes.
Higher energy prices also tend to reach businesses and consumers faster than changes in shipping costs. Freight-related inflation often peaks about 12 months after the initial disruption, as higher transport costs move through supply chains.
On the other hand, war-risk insurance premiums have increased as insurers adjust coverage for vessels operating in high-risk areas. At the same time, the number of available tankers has declined, leading to tighter competition for shipping capacity. Freight costs have moved higher as a result.
Rethinking Global Trade and Logistics
Governments often respond to conflict by imposing tariffs, quotas, or embargoes, according to the Oxford University College of Procurement and Supply. These measures aim to protect domestic industries or apply political pressure, but they also alter how markets operate.
Higher import costs can also reduce demand for foreign goods and push companies to look for local suppliers. Such a shift may help domestic producers, but it can raise production costs or limit available supply when local capacity falls short.
Likewise, trade agreements and alliances can ease some of this pressure. In stable regions, these arrangements lower barriers and improve access to goods, which helps companies expand supply while managing costs.
However, when alliances weaken or agreements collapse, the benefits can quickly reverse. Logistics planners then face tighter restrictions, added documentation, and longer transit times. The pace of these changes leaves little time for gradual adjustment, which can disrupt supply chains that depend on steady and predictable flows.
Companies often operate within national and international law, but compliance does not always settle questions about responsibility. The absence of formal sanctions in some conflicts can make decision-making more difficult, according to the Institute for Human Rights and Business.
For instance, during Russia’s invasion of Ukraine in 2022, some companies chose to halt operations. In other conflict zones, similar actions have not always taken place.
Businesses are advised to assess whether their activities could be linked to harm, even if they are not directly involved. This process becomes more needed in global supply chains that span multiple countries and include many intermediaries. — Mhicole A. Moral
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