In the past few days, kinetic and regulatory wars have been launched, with significant implications for the future of warfare and global supply chains. With Operation Epic Fury, the US and Israel attacked targets in Iran. The military operation continues to evolve, as more US forces flow into the Middle East and retaliatory attacks spread across the region. At the same time, the future of AI in warfare evolves by the day, as social media posts announce banned software and new partnerships for the Pentagon. A US company is declared a supply chain risk, leading organizations to quickly audit their own tech stack and those of their suppliers. Together, these are indicative of the new world order whose rules and inflection points change by the day, and in turn lead to yet another round of massive supply chain upheavals.
The Kinetic Front
The supply chain impact of a war in Iran has largely focused on oil markets which, as anticipated, spiked on Monday. The war continues to expand, with Iran targeting US bases, regional airports, energy sites, and a British RAF base, while Israeli attacks expand into Lebanon. Moreover, the Iranian Revolutionary Guard Corps has announced the closure of the Strait of Hormuz, through which over one-fifth of the world’s oil passes.
While the Strait of Hormuz is not officially closed, traffic has decreased substantially. Commercial vessels were advised to avoid the area as several oil tankers were attacked. Shipping companies are rerouting around the Cape of Good Hope and warn of delays and increased prices to defer the costs. Air transportation has been disrupted as major international airports close, including Dubai, the world’s busiest international hub.
As a critical energy chokepoint, the war’s impact disproportionately impacts importers reliant on regional oil and gas exports. Qatar is also among the world’s largest LNG exporters and caused prices to spike after it shut down production when production sites were targeted by an Iranian drone attack.
Asia bears the brunt of the energy dependencies, with Japan, India, China, and South Korea among the top importers of petroleum from this region. China, the largest recipient of crude oil from both Iran and Venezuela, may be particularly vulnerable. Of China’s top 10 crude oil suppliers, six are in the Middle East, while highly sanctioned Russia and Venezuela are two of the other top suppliers. In contrast, the U.S. gets a significant portion of its oil domestically, with top imports coming from Canada. It is no wonder China quickly condemned the attacks and called for a ceasefire.
China is not alone in feeling the economic ramifications of potential supply chain disruptions. Almost 30% of S&P 500 companies have an immediate supplier in the Middle East, and virtually all of them have tier 2 suppliers in the region. But they aren’t alone. Global stocks experienced a whipsaw, rebounding from earlier losses, while gold rose and oil surged. On the morning of the fourth day of the war, stocks and bonds dropped while oil continued to spike. Market volatility will likely grow as uncertainty surrounding the length and expanse of the war persists.
The Regulatory Front
On Friday, the dispute between the Pentagon and Anthropic came to head, as back-to-back social posts by President Trump and Defense Secretary Pete Hegseth terminated the partnership. Specifically, Hegseth’s post designated Anthropic a supply chain risk and that “Effective immediately, no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.”
The disagreement rests on the use of AI, with Anthropic defending two red lines opposed to the use of their products for domestic surveillance or autonomous weapons without human oversight. There is yet to be further specification or a formal notice on how Anthropic will be labeled as a supply chain risk nor the scope of what it would entail for compliance. The key factor may rest on what is viewed as commercial activity rather than some of the more mundane tasks, such as summarization or drafting documentation. That said, the uncertainty is prompting companies to audit the potential impact, with a six-month phase-out period.
Earlier last week, the Pentagon and xAI reached a deal to use Grok in classified settings. Within hours of the Anthropic ban, OpenAI announced it had reached an agreement with the administration. All of this continued the massive rollercoaster for the AI industry, which experienced a market shock earlier in the week and leaves organizations wondering whether an American company in their tech stack will pose a compliance risk.
The Fog of a Two-Front War
Simultaneous to the ban, Anthropic’s Claude reportedly supported intelligence assessments, target identification, and simulations in preparations leading to the war in Iran, highlighting how deeply embedded it might be within the military’s supply chain. It also demonstrates the uncertainty surrounding the ban, and how and when it might be implemented.
At the same time, the war in Iran may last four to five weeks, or “go far longer than that” according to President Trump. For organizations seeking to stay on top of the AI race, news of an unprecedented ban of a US tech company is disrupting even the best laid plans. And despite weeks’ worth of build up toward a war in Iran, it nevertheless introduces the fog of war and uncertainty of how it will end and what the future may hold in the region. We will be closely monitoring each of these and continue to surface the supply chain impact of this new world order.