ASCI Connect

Short and Medium-Term outlook

It seems too early to describe the conflict between Israel and Iran as a war. It would appear that the attack by Iran on Israel was deliberately limited to avoid what military theorists call 'escalation'. However, this strategy may not work and the political stability of the Middle East may deteriorate even more. The effects of this on the logistics sector would be quite significant but it might be a mistake to exaggerate them.

• Impact on pricing. Before the most recent attacks, there were signs that container shipping rates were softening over the past six weeks. Although, as ever, there are a number of variables at work, including an improving global economy, the underlying story is one of increasing numbers of new container vessels entering the market, ensuring that even with the impact of routing through around the Cape of Good Hope there was enough capacity available. Fundamentally this dynamic will not change, however, if there is further disruption to the ports in the UAE and elsewhere in the Gulf this may push short-term rates higher. Certainly, the threat to Dubai is serious. Even a modest disruption of a container terminal complex of this size will cause disruption to the wider system of container logistics. Whilst it is unlikely to be as severe as the dysfunction seen in 2021-2022, it will still inflict problems for the wider container sector.
• Cargo volumes passing through the Suez Canal may fall further. Not all cargoes have ceased using the canal, with volumes in terms of the numbers of ships passing through the canal down by around a half. Energy cargoes, for example, still use the canal and these may be now vulnerable to disruption. On the other hand, it is now clear that the Houthis are not rogue operators but instruments of Iran. This suggests that if Iran is brought to terms the Houthi problem may become manageable.
• UAE and other ports in the Gulf are under threat. Iranian attacks in the Strait of Hormuz are not new however it is unusual for the Iranians to directly assault a cargo vessel. The response to this is highly unpredictable with the various naval forces in the area quite likely to take forceful action against Iran.
• Oil cargoes may be affected by Friday's action if the situation continues to escalate. Although Iran has a powerful incentive to sustain the oil trade from the Gulf, it may lose control of the situation and there may be a return to the 'Tanker Wars' of the 1980's. The impact of this would certainly be an increase in oil prices.
• Airfreight is an important trade in the Gulf and the Gulf is important to airfreight. Two of the Gulf-based airlines are the largest conventional airfreight carriers in the world. If their hub operations are disrupted it will inevitably have a deleterious impact on the airfreight supply side.
• India is threatened by any disturbances in this region. The Houthis have already made missile attacks in waters neighboring India. The MSC Aires was en route to an Indian port when she was attacked. The trade from Dubai is important to India's growing international trade and Iran is an important supplier of hydro-carbons to India.

https://www.ti-insight.com/briefs/instability-in-the-middle-east-threatens-global-logistics-sector/