Right now, a proposed peace deal between the U.S. and Iran remains in flux, as key issues, like the Strait of Hormuz and Iran’s nuclear program, remain sticking points.
The Strait of Hormuz remains one of the region’s most vital chokepoints, with about 20% of the world’s petroleum and liquified natural gas passing through. These materials are used in transportation, farming, shipping, and manufacturing.
But it does not only impact companies, as the Secretary-General of the International Maritime Organization, Arsenio Dominguez, notes. 20,000 seafarers, port workers and offshore crews are impacted in the region.
No matter when a peace deal is agreed upon, one of our globe’s biggest resources, oil, will remain a key issue. Our allies in the Gulf and throughout the Middle East have been the ones feeling the pinch the most, as they deal not only with retaliatory strikes from Iran but also a lack of access to the Strait.
On Bloomberg, former National Security Advisor John Bolton suggested until a deal is reached to open the Strait, the US lifts the blockade on the side of Gulf countries, while keeping the blockage in place for Iran, thus allowing these allies to access one of their main thoroughfares. Without that as an option currently, nations throughout the Middle East are using multiple options as a backup. Saudi Arabia is using a 750-mile Petroline to transport. The UAE is routing oil through the Abu Dhabi crude pipeline to Fujairah on the Gulf of Oman. Cargo is also being diverted to Oman, Saudi Arabia’s coast on the Red Sea and to Syrian ports in the Mediterranean. Despite all of these backup options, none are a full replacement for such a vital transport route.
Moving beyond oil, the World Economic Forum makes the important point that this chokepoint is used to transport much more than oil. At least 20% of all seaborne fertilizer exports make their way through the Strait. Nearly half of the global sulfur trade makes its way through this pathway. About a third of the global seaborne methanol trade goes through the Strait of Hormuz. The synthetic graphite used in electric vehicle batteries also goes through this pathway. Outside of China, the Middle East is a major supplier of aluminum, exporting around 9% of global primary aluminum. Qatar handles about ⅓ of the global helium supply. Monoethylene glycol, which is used in polyester fiber, packaging and textiles is one of the Gulf’s most important chemical exports. The Gulf also supplies a lot of high-grade iron ore pellets and direct-reduced iron, which are pertinent feedstocks for global steelmaking.
Finally, the Middle East has been positioned to become a major green hydrogen hub with electrolyser capacity exports plans in the pipeline. As this worldwide organization notes, geoeconomic conflicts, like the Iran war, are a key driver of economic and industrial policy, as countries and companies worldwide deal with the ripple effects of this clash.
The global supply chain impacts are far-reaching, and also note a larger issue to take into account. As The Economist notes, a blockage of shipping and transport, such as the one currently taking place in the Strait of Hormuz, warns of vulnerabilities with every major maritime chokepoint, which carry 85% of world trade.
For importers and shippers, the consequences of all of this show up in two places: how long shipments take, and how confidently you can predict when they will arrive. Both have shifted materially since February.
The Cape of Good Hope rerouting, which is now the default for most Asia-to-Europe and Asia-to-Middle East lanes, adds roughly 3,500 to 4,000 nautical miles to a voyage. In practical terms, that is 10 to 14 additional days of transit. Standard Asia-to-Europe transits that used to run 25 to 32 days through Suez are now landing in the 35 to 45 day range, and fuel consumption per voyage is up roughly 30%. Those costs flow through to surcharges, which carriers have been quick to implement.
Maersk introduced an emergency freight increase on all cargo to and from the UAE, Qatar, Saudi Arabia, Bahrain, Kuwait, Iraq, and Oman effective March 2, and most other major carriers followed within 48 hours. War risk insurance for Gulf transits was suspended on March 5, and premiums on any route touching the region have surged to multi-year highs.
For U.S. importers, the knock-on effects are real even when goods are not moving through Hormuz directly. Capacity absorbed by long-haul rerouting tightens the global fleet, transpacific spot rates have firmed back up (sitting around $2,800 per FEU to the U.S. West Coast and $3,800 to the East Coast as of mid-May), and empty container positioning has gotten less reliable in Asian feeder ports. The system is interconnected enough that a chokepoint in the Gulf raises landed costs on goods that never see the Indian Ocean.
What that means operationally for shippers is straightforward. Inventory sits in transit longer, tying up working capital that used to be turning. Just-in-time arrangements that were already strained have less margin to absorb a delay. And any current ETA should be treated as a working estimate rather than a commitment.
We are advising clients to build longer transit windows into their forward planning, to talk to us early when a shipment has a hard arrival deadline, and to plan inventory and customer commitments around a more conservative calendar. Options to accelerate freight when timelines compress still exist, but they are more expensive than they used to be and need to be locked in further ahead. The cheapest version of resilience right now is simply leaving more room in the schedule.
M.E. Dey & Co.
Delivering the World Since 1907
