Supply Chain Leaders Face Escalating Risks Amidst Israel-Iran Conflict

The ongoing tensions between Israel and Iran present significant challenges for global supply chains. Chief supply chain officers must proactively address disruptions to safeguard their operations and navigate the impacts of this volatile environment.

Priorities for Supply Chain Leaders

According to a recent analysis, David Gonzalez, VP analyst in Gartner’s Supply Chain practice, suggests CSCOs must prioritize critical steps. These include mitigating exposure to global transportation bottlenecks, preparing for cost volatility, and evaluating supply chain resilience strategies.

The conflict’s impact has already forced adjustments to shipping routes by air and sea cargo carriers. The situation underscores the need for CSCOs to be proactive.

Specific Challenges and Areas of Concern

Several key areas are experiencing significant disruptions:

• Red Sea and Suez Canal: Container traffic remains well below pre-crisis levels. Many shipping lines are avoiding the Suez Canal.
• Strait of Hormuz: Increased risk of disruption is causing delays and congestion. Companies are seeking alternative routes.
• Regional Ports: Ports such as Jebel Ali and Haifa are facing increased pressure, with potential service interruptions.
• Eurasian Rail Freight: Demand for rail freight between Asia and Europe has surged, leading to longer booking times.

“As the conflict between Israel and Iran oscillates, CSCOs must leverage the resilience they have built in recent years, recognizing that the global significance of this region makes it nearly impossible to avoid adverse impacts, even if only indirect.”

—David Gonzalez, VP analyst in Gartner’s Supply Chain practice

Ongoing disruptions are driving up supply chain expenses related to energy, transportation, and insurance. In 2024, the average cost of shipping a container from Asia to Europe has increased by 30% due to geopolitical instability (World Shipping Council, 2024).

Recommendations for CSCOs

CSCOs need to actively engage with CFOs to assess budget impacts and anticipate increased spending. Identifying risks to critical raw materials and ensuring the continued flow of finished goods are also crucial. These leaders must work together to conduct cost-benefit analyses of mitigation actions in partnership with finance leaders.

Gonzalez advised, “Regardless of the status of the conflict, CSCOs should continue engaging with their ecosystem of partners to identify alternative routes, assess the viability of shifting volume to less impacted regional ports, and consider multimodal transportation options for some goods after conducting a cost-benefit analysis. This conflict should serve as a catalyst for improving organizations’ supply chain resiliency plans over the long-term.”