Arabian Gulf Business Insight (AGBI): Global supply chains across industries are shifting away from linear routes towards more complex, multi-hub networks due to the Iran war.

Analysts say the conflict has exposed the fragility of “just-in-time” logistics – systems that minimise inventory – and accelerated a shift towards redundancy, diversified sourcing and larger buffers as companies prioritise resilience over cost.

A tentative two-week ceasefire between Iran and the US and Israel has enabled a partial resumption of energy flows through the Strait of Hormuz, which carries about a fifth of global oil and liquified natural gas (LNG) supplies.

Yet the conflict highlights how vulnerable the world’s economy remains to a handful of maritime chokepoints.

“We are entering a whole new vernacular for global trade,” said Marco Forgione, director general at the Chartered Institute of Export and International Trade.

“Single source [supply chains] to reduce costs is highly fragile and builds in immense vulnerability.”

Exposure to a lack of alternatives
During the Covid-19 pandemic, supply disruptions shaved up to 1 percentage point off global growth, according to the International Monetary Fund.

Then came the 2021 grounding of the Ever Given ship in the Suez Canal, which halted roughly $10 billion in daily trade flows and cost an estimated $400 million an hour.

The effective closure of the Strait of Hormuz demonstrated how few viable alternatives exist.

Pipeline infrastructure has emerged as a partial buffer. Saudi Arabia’s East-West pipeline to the Red Sea and the UAE’s Habshan-Fujairah line are operating near capacity and rerouting crude away from Hormuz.

The Kirkuk-Ceyhan pipeline is close to working following years of damage, and will provide an important non-Hormuz route for Iraqi oil to reach Mediterranean markets.

And the 320km Suez-Mediterranean (Sumed) pipeline, which runs from Egypt’s Ain Sokhna on the Red Sea to Sidi Kerir on the Mediterranean, provides another option for transporting Gulf oil to Europe and the West. 

“Even combined, these options cover only around 35 to 40 percent of Hormuz flows, meaning a large share of global supply remains exposed,” said Paolo Carlomagno, transport and logistics partner at consultancy Arthur D Little.

Unlike oil, LNG lacks scalable overland alternatives, leaving it heavily dependent on maritime routes through Hormuz.

The rise of strategic corridors
The response is shifting towards building parallel routes that reduce reliance on any single corridor.

“Overland energy routes will gain renewed importance,” said Laurent Lequeu, founder of finance advisory The Macro Butler.

Among the projects gaining attention include the India-Middle East-Europe Economic Corridor (Imec) – a rail, road and maritime network linking India, the Gulf and Europe; the Development Road Project – a $17 billion road and rail corridor connecting Iraq to Turkey and onwards to Europe as an alternative to Hormuz and Red Sea routes; and the China-Pakistan Economic Corridor (CPEC), under the Belt and Road Initiative, which enables westward energy corridors through Central Asia and Pakistan. 

Even as new corridors emerge, they are not yet sufficient to replace existing chokepoints.

“Investment is required to create those new routes, new processes and new infrastructure to ensure that goods and products are able to flow into and out of the Middle East,” Forgione said.

“If you look at the way in which the global multilateral system is operated, with the World Trade Organization and the United Nations traditionally being the forum for negotiation, discussion and resolution, it’s clear they no longer work,” he said.

From chains to webs
What is emerging in its place is a more complex architecture: less efficient, more expensive, but designed to absorb shocks.

Supply chains are becoming supply webs, according to Forgione.

“The world that emerges from such a disruption will be less centralised, even more polarised, and structurally more expensive, with energy security elevated from a policy consideration to a defining axis of economic strategy,” Lequeu said.