Global Supply Chain Disruption

by Sneha Kumari Shaw

Introduction

Approximately 12% of total global trade passes through the Suez

Canal.Roughly 30% of the world’s seaborne oil trade passes through the Strait

of Hormuz.It is a crucial waterway connecting the Red Sea and the

Mediterranean Sea, offering a shorter shipping route between Asia and

Europe.Due to the recent conflict between Israel and Hamas, this region has

created uncertainty in the global supply chain.This region is a major supplier

of oil and petroleum products; any disruption here can impact all sectors in all

countries.Therefore, keeping in mind the importance of this region, this report

specifically focuses on the disruptions created by the Israel-Israel conflict

and their impact.

Key Disruptions:

Shipping and Logistics:

At the onset of the war, attacks on vessels in the Red Sea and near the Suez

Canal were reported, causing a drop in traffic in the region. Consequently,

many shipping companies diverted their ships around the Cape of Good Hope.

lengthening trade routes. This created supply delays and harmed companies

with limited inventories.The most recent data for the Global Supply Chain

Pressure Index (GSCPI) is -0.3125 for January 2025.

Energy sector:

The Middle East is a crucial region for global oil production and distribution.

any conflict there can impact global oil prices. When the recent conflict began,

the global benchmark Brent crude oil price rose by over 4%. Disruptions to

pipelines and processing facilities can have significant repercussions for

global energy markets, impacting industries reliant on these resources.The

World Bank warned that an escalation could push oil prices up to $150 per

barrel, significantly impacting global inflation and economic stability.

Manufacturing and Trade:

Attacks and regional instability create security concerns that hinder the flow of

raw materials, components, and finished products, impacting manufacturing

output and trade. Israel’s economy, with its strong emphasis on high-tech,

where the sector contributes 18.1% of its GDP, is vulnerable to disruptions

caused by regional conflict. Major multinational companies, including IBM,

Google, Microsoft, and Facebook operate in Israel, and instability in the

region can create supply chain disruptions for electronic devices. These

disruptions can affect a range of products, including audio equipment, radio

communication devices, sensors, and media equipment. As a major exporter

and importer of products using integrated circuits such as broadcastingequipment, medical instruments, and other measuring equipment, high-tech

industries are particularly susceptible to the impact of such conflicts.

Israel is a major supplier of diamonds. Therefore, the current conflict and

resulting disruptions are also impacting the diamond industry.

The region serves as a major producer of generic pharmaceuticals and

medical supplies. Israel contains nearly 700 medical device companies that

make everything from ultrasounds to neurostimulation devices used to treat

Alzheimer’s disease.The pharmaceutical industry is also threatened by the

conflict.

Agriculture and Food Security:

The Israel-Hamas war has raised concerns regarding the global supply chain

of potash fertilizer. Ashdod Port is a significant hub for Israel’s potash fertilizer

exports located north of Gaza. The situation places about 3 per cent of the

global potash supply at risk. Increased fertilizer prices directly translate to

higher input costs for farmers around the world. This can squeeze their profit

margins and potentially lead to reduced fertilizer use. If farmers are unable to

afford or choose to use less fertilizer, it can result in lower crop yields.

Reduced crop yields due to decreased fertilizer use can lead to a decrease in

the overall supply of agricultural products. This, combined with potentially

increased demand can drive up food prices in the global market.

Effects of SUPPLY CHAIN DISRUPTION:

1. Price increases and inflation.

Supply chain interruptions, greater demand, and higher manufacturing costs

all contribute to raw material and finished item price rises. As a result, people

are feeling the strain in their wallets, which is causing changes in purchasing

habits and raising concerns about general economic stability. Shortages of

vital supplies are becoming increasingly regular, worsening the problem.

Businesses pass on these greater expenditures to their customers, resulting

in inflation.

For example, the chip shortage prompted a reduction in vehicle production,

resulting in increased automotive costs.

2. Manufacturing delays

Manufacturing delays are caused by a lack of critical components. This not

only disrupts production schedules but also causes major financial losses for

firms who are unable to satisfy. demand. Businesses may be compelled to lay

off workers as a result, which would have a major negative impact on the

economy and increase the cycle of uncertainty that affects both producers and

consumers. Additionally, purchasers may have to wait longer for available

cars due to the effects of these manufacturing delays, which could result in

higher prices. Customers may find this a challenging experience, leading

some to completely reevaluate their purchase decisions.Delays in product launches and dwindling sales cost businesses money.

For instance, delays in the smartphone industry were caused by a shortage of

microchips and other essential parts.

3. Economic downturns and unemployment

When supply chain interruptions lower productivity, businesses could have to

fire employees. It has an impact on Entire industries, such as retail and

automotive, that suffer losses, affecting national economies.

Solutions to mitigate global supply chain disruption:

1. Increasing Supply Source Diversification

Businesses should steer clear of becoming overly dependent on one nation or

supplier for their raw materials. This strategy not only mitigates risks

associated with supply chain disruptions but also fosters competitive pricing

and innovation. By tapping into a wider array of sources, companies can

enhance their resilience and adaptability in a dynamic market environment.

Growing networks of suppliers aids in maintaining corporate operations in the

event of disruptions.

To lower risks, for instance, many businesses are moving their production

from China to Mexico, Vietnam, and India.

2. Purchasing Technology for the Supply Chain

Real-time tracking, block-chain, and artificial intelligence can improve the

efficiency and visibility of the supply chain.Reliance on manual labour can be

decreased in factories and warehouses through automation.

For instance, Amazon optimizes inventory management and delivery with AI-

powered logistics.

3. Enhanced Infrastructure for Transportation

Expanding ports, improving roads, and investing in efficient shipping routes

can minimize bottlenecks.Governments should collaborate to create smooth

international trade corridors.

Example: The expansion of the Panama Canal has improved global shipping

efficiency.

ConclusionAs it is a globally connected world, any disruption in one region affects the

entire globe. But the Suez Canal and Red sea are such an important trade

route that even a single disruption can affect the entire world economy. This

affects the supply chain, agricultural production, high-tech industry, oil and

natural gas distribution. That increases the price of products and costs major

to minor organizations.Therefore, countries need to diversify their trade routes

and increase infrastructure to avoid such disruptions in the future because the

Middle East is a very uncertain region

Reference:

Chainlink Research:  A Wider Middle East Conflict Could Worsen Supply

World Bank: Global Supply Chain Disruptions : Competition Policy Implications

Irish times: How conflict in the Middle East is squeezing global

The Indian Express: Middle East crisis: Amid supply chain stress,

IFPRI: One year of war in Gaza: Food emergency continues with no end

Federal Reserve Bank of New York: Global Supply Chain Pressure Index