As the U.S. and Israeli war on Iran enters its fifth day, cascading threats to the global economy and supply chains are becoming more apparent, especially regarding shipping and air travel.
Due to the effective closure of the Strait of Hormuz, some 3,000 ships of all types are stranded, including around 10 percent of the global container ship fleet. (One container ship was also struck by a drone on Wednesday.)
As the U.S. and Israeli war on Iran enters its fifth day, cascading threats to the global economy and supply chains are becoming more apparent, especially regarding shipping and air travel.
Due to the effective closure of the Strait of Hormuz, some 3,000 ships of all types are stranded, including around 10 percent of the global container ship fleet. (One container ship was also struck by a drone on Wednesday.)
But the more visible impact, especially for thousands of foreign citizens stranded in the region, is the sudden shutdown of nearly all civil aviation.
Most countries in the Middle East still have closed airspaces, including Iran, Iraq, Israel, and Qatar. Some, such as Saudi Arabia and the United Arab Emirates, have begun to partially open their airspaces but are far from operating at normal capacity. Airlines have canceled more than 18,000 flights to a region that has become a central hub in the global air-transport business.
That is becoming a headache for the Trump administration, which urged U.S. citizens to leave more than a dozen Middle Eastern countries despite a lack of air travel options in most cases. Mike Huckabee, the U.S. ambassador to Israel, suggested U.S. citizens there take a bus to Egypt to seek flights home.
The U.S. State Department has so far been unable to offer direct assistance to stranded U.S. citizens in the war zone, though it said on Tuesday that it is preparing to organize charter flights to repatriate Americans from Saudi Arabia, the UAE, and Jordan. U.S. President Donald Trump said on Tuesday that the State Department was unprepared to organize evacuations of U.S. citizens because “it happened all very quickly.”
Other countries are also scrambling to organize charter flights to repatriate their citizens, including the United Kingdom, France, and India. European nations, such as Spain, the Netherlands, and Belgium, are also working to evacuate their citizens.
The war’s other major impact, which is growing sharper by the day, is the disruption to air cargo, an $8 trillion industry that accounts for around one-third of world trade by value. In recent years, the Middle East, especially Doha and Dubai, has become a vital bridge connecting Europe to the Asian market, both for passenger travel and for air freight. More than 12 percent of global air freight volumes passed through the Middle East in January.
But over the past week, global air cargo capacity has declined by as much as 18 percent as airspace closures throughout the region ground planes and force diversions. Previously, about half the air freight from China to Europe stopped in the Middle East, but that corridor has seen a capacity reduction of around 40 percent in the past week. The industry expects backlogs to quickly build up, which will strain warehouse capacity and add to shipping costs (and eventually consumer prices).
Those supply chain snarls, which particularly affect high-value and often perishable goods such as electronics and pharmaceuticals, come while the global trading system is still adjusting to Trump’s tariffs and trade war, which have rejiggered trade flows and added costs for U.S. importers.
In addition to those headwinds, the global aviation industry has to contend with rising oil prices as a result of the war—benchmark crude is fluctuating in the $80 to $84 a barrel range—and a particularly steep rise in the cost of jet fuel. Global jet fuel prices were already creeping higher just before the conflict broke out, and they are now soaring, especially in Asia and the United States. While many airlines have perfected hedging strategies to shield against sudden spikes in fuel costs, airline stocks globally this week have been hammered.
The conflict could also have a longer-term impact on some of the industry’s biggest success stories. Middle East air carriers such as Emirates and Etihad have become central as long-haul connectors for people and cargo between Europe and Asia, turning themselves into the most profitable in the business.
But the spreading conflict, and the newly demonstrated vulnerability of commercial entrepots such as Dubai, is making alternative air transport hubs such as Turkey and even Ethiopia more attractive, said Craig Jenks, president of Airline/Aircraft Projects Inc., an aviation consultancy.
Jenks said that airline officials right now are grappling above all with “the colossal uncertainty as to how the overall situation develops, and how much worse it gets.”
This post is part of FP’s ongoing coverage. Read more here.
