As the conflict between the U.S. and Israel, and Iran intensifies, trade in the Middle East is facing major disruptions.

These disruptions have already begun to impact global supply chains, especially for industries reliant on Middle Eastern oil and liquid natural gas for production. Many U.S. manufacturers are bracing for supply chain disruptions while planning for potential short-term and long-term economic impacts of war with Iran.

Currently, the most significant impact on global supply chains stems from disruption to the Strait of Hormuz, a crucial shipping channel in the Middle East connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. Approximately 20 percent of the world’s oil and gas is shipped via the Strait of Hormuz. Following the joint strike against Iran by the U.S. and Israel on February 28, access to this vital trade channel has effectively been cut off, with Iran threatening to attack any ships attempting to pass through. The closure poses serious operational challenges for ships in the area, including oil and liquid natural gas tankers. Many ships are rerouting via the Cape of Good Hope, which will result in significant delays for deliveries. The closure of multiple airports and large portions of airspace in the Middle East due to high security risk has also stalled the movement of air cargo in the region.

The extent of the impact on global manufacturing depends largely on how long the conflict lasts. Logistics Viewpoints compares the potential fallout resulting from a short-term versus a prolonged conflict, predicting that even a short-lived conflict of seven days or less will result in a surge in crude oil prices, higher raw material costs, shipping delays, and raw material shortages. A prolonged conflict, on the other hand, would have a much more significant impact on global supply chains. According to Logistics Viewpoints’ analysis, if the war extends beyond four weeks, manufacturing companies will face even greater pressures related to energy prices, logistics costs, raw material availability, and consumer demand.

As of right now, the duration of the war against Iran remains unknown. Manufacturing companies are encouraged to prepare for possible economic impacts by assessing supply chain exposure, diversifying supply chains, and planning for various potential scenarios. RBT CPAs’ manufacturing accounting team will continue to monitor the impact of the conflict on manufacturing companies and we are ready to assist you in planning strategically in the face of potential supply chain disruptions. And as always, RBT is here to support all of your business’s accounting, tax, audit, and advisory needs while you focus on risk management and mitigation strategies. Give us a call today and find out how we can be Remarkably Better Together.