The geopolitical situation in the Middle East intensified significantly last week with Israel’s bombing of Iran and the resulting escalation of the conflict. The worsening situation is already affecting global supply chains, raising serious concerns about how the conflict may develop.
According to Bloomberg, some tanker companies have stopped offering vessels for routes in the Middle East while they assess the risks. The region accounts for about one-third of global oil production, and major exporters like Saudi Arabia and the United Arab Emirates have little room to reroute shipments if navigation is disrupted.
A particularly sensitive chokepoint is the Strait of Hormuz, which handles around 20% of global petroleum consumption, with average oil flows of 20.9 million barrels per day in 2023. Any disruption, even temporary, could drastically impact global energy prices and cause significant supply delays.
In addition to oil, the strait is critical for global container trade. Ports in this region (Jebel Ali and Khor Fakkan) are transshipment hubs, serving as intermediary points in global shipping networks. The majority of cargo volumes from those ports are destined for Dubai, which has become a hub for the movement of freight with feeder services in the Persian Gulf, South Asia and East Africa.
Freight rates have already surged following Israeli airstrikes on Iran. Data from analytics firm Kpler shows that freight rates for tankers traveling from the Middle East Gulf to China rose by 24% on Friday (June 13), reaching USD 1.67 per barrel.
The global benchmark Brent crude price climbed to USD 74.60 per barrel at the start of Monday (June 16), a nearly 7% increase since Thursday (June 12), one day before Israel’s attack. Goldman Sachs analysts warn that a worst-case scenario involving a blockade of the Strait of Hormuz could push oil prices above USD 100 per barrel.