The G7 and the International Energy Agency announced a historic and record release of oil reserves last week. Aluminum prices are spiking. Iran’s new Supreme Leader promises to keep the Strait of Hormuz unsafe for passage. The 10-year Treasury bond yields continue to rise, a potential harbinger of weakening global interest in a historic safe haven. These are just a few of the global supply chain and macro-economic disruptions stemming from the ongoing war in Iran. The following details some key supply chain implications we are monitoring as this conflict unfolds.
Supply Chain Interdependencies
Approximately 30% of S&P 500 companies have a direct supplier in the Middle East, and almost all have tier 2 and tier 3 dependencies there. The top industries across these three tiers are: Chemical Product Manufacturing, Plastic and Rubber Product Manufacturing, Freight Transportation Services, Industrial Equipment Manufacturing and Sales and Consumer Goods.
Looking at direct import/export dependencies, the following are the top five countries most reliant on exports from countries in the Middle East and have been targeted in the war, along with the percent of their imports stemming from one of these countries. In addition, China also ranks upon the top importers from the region.
- Georgia – 28.01%
- Pakistan – 19.58%
- Macedonia – 11.24%
- Armenia – 10.43%
- Uzbekistan - 7.88%
- China 6.8%
Focusing on exports to the Middle East, the following lists the top five exporters to the region and the percent of imports coming from these countries. These identify the countries the region is most reliant on for incoming trade.
- China – 27.10%
- Italy – 11.43%
- United States – 10.88%
- Netherlands – 8.86%
- Australia – 5.93%
Turning to Iran’s economy, Iran’s global interdependencies have been ruptured by decade’s worth of sanctions from the US and allies. Despite this, Iran has maintained trade ties with some major economies, which in turn enable global impact due to the complex and hyperspecialized nature of modern supply chains. When focusing on the tier 2 and tier 3 supply chains linked back to companies in Iran, the major global economies have indirect relationships to these companies. The top five countries that have indirect, tier 2 and tier 3 buyer/supplier relationships to companies in Iran are: USA, UK, India, China, and Germany.
Product Dependencies
Over one-fifth of the world’s oil and gas passes through the Strait of Hormuz. Although global prices are impacted, Asia may be especially hard hit with 80% of their oil imports passing through the Strait. The energy markets clearly demonstrate this dependency, but when looking at products beyond oil and gas imported to and exported from the region, additional vulnerabilities surface.
For instance, over 50% of Boron is exported from this region. Boron is found in sustainable emerging technologies, such as solar and EV batteries, and is on the US Critical Minerals List. In addition, almost 14% of the world’s aluminum is exported from the region. The aluminum market has already been disrupted by the Section 232 sanctions due to its critical role in emerging technologies and defense systems. The price of aluminum has spiked since the war started, reaching a 4-year high. Finally, over 9% of the world’s fertilizer is exported from this region, leading to market spikes. These spikes emerge just as key planting seasons start in many global agricultural regions. Below are some notable exports from the region:
- Boron – 52.97%
- Sulphur – 36.65%
- Marble – 31.71%
- Petroleum oils – 26.55%
- Additive Manufacturing Machines – 18.74%
- Diamonds – 17.53%
- Petroleum Gases – 14.83%
- Cotton – 14%
- Aluminum – 13.64%
- Magnesium - 12.6%
- Wood, cork, etc. – 10.7%
- Fertilizer - 9.38%
- Gold – 6.4%
The Middle East is highly dependent on agricultural goods coming into the region. The Strait of Hormuz is a significant source of subsistence to the region. Among the many agricultural staples the region depends on are fish, soybeans, prepared foods, fruits and nuts, vegetable oils and corn. The Middle East also comprises 37% of the global imports of live ovine animals and 15% of ovine meat. Water is also at risk as desalination plants continue to be targeted in retaliatory strikes. Food insecurity peaks during wartime and it may be exacerbated due to the significant role of the global trade chokepoint.
Additional Considerations
- NATO involvement: Despite claiming the war has “nothing to do with NATO” and “This is not our war”, reality on the ground may prove otherwise. The war has already expanded well beyond Iran, with retaliatory missiles targeting over a half dozen countries from Cyprus to Oman. NATO defenses have blocked missiles targeting NATO member, Turkey, and Italian military aircraft were struck in Kuwait. While European countries have been hesitant to get involved, its sheer proximity and regional interests increasingly pressure-test that stance.
- Sanctions Regression?: Although the Iranian economy was already heavily sanctioned, this economic tool remains a prominent weapon. Due to the spiking oil prices, President Trump announced a temporary hold on Russian oil and gas sanctions. The U.S. Treasury’s Office of Foreign Assets Control (OFAC) issued a general license update to authorize the delivery and sale of crude oil from Russia. While it does not list specific companies, interos.ai data surfaces over 700 sanctioned Russian companies that may fall under this license, thus making Russia a beneficiary of the war in Iran.
- AI Infrastructure: A lot of time and money have gone into making the Middle East an AI hub. The US government has recognized the strategic importance of this buildout through Pax Silica, a cooperative agreement to secure AI and its supply chains, with key Middle East partners including Israel, Qatar, and the UAE as members. Saudi Arabia’s Vision 2030 plan alone targeted $40 billion in AI investments, and the UAE has similarly positioned itself as a global AI hub. Within the region, there are over 150 data centers, with over one-third located in Israel, Saudi Arabia, and the UAE, and one quarter in Turkey. These have already come under attack, as Iran struck Amazon data centers targeted in the UAE and Bahrain. AI infrastructure risks also extend to subterranean infrastructure. Underseas cables carry over 95% of global data each day. From the Red Sea to South China Sea to the Baltic, these cables have been targeted by geopolitical adversaries.
- Global Power Plays: With global attention on Iran, other global powers may use this opportunity for their own geopolitical aims. On March 16th, North Korea launched 10 ballistic missiles into the sea, coincidentally at the same time as joint US-South Korea military exercises. While China’s risk calculus is fundamentally shifted toward Taiwan as the US continues to redirect aircraft, missiles, air defenses, and more, from Asia to the Middle East. And Russia certainly is emboldened by high gas prices and the sanctions reprieve, not to mention a Trans-Atlantic rift that could impact support for Ukraine.
“The rules based order is fading”, Canadian Prime Minister Mark Carney articulated at Davos in January. Nowhere is that more true than in the weaponization of supply chains among the world’s two largest economies. The war in Iran is part of a much larger strategic transformation, one which economic warfare is deployed to tighten control on those strategic commodities that are essential to twenty-first century economies and global supply chains.