Disruptions to Industry caused by Conflict in the Middle East

The global economy is already showing signs of weakness since the start of the conflict in the Middle Easy less than a week ago. There are rice exports delayed in Indian ports and the price of fertilizer has risen dramatically. This will undoubtedly have a knock-on effect on food production if it continues.

A climbing energy price will probably cause a hike in the inflation rate, and with it, interest rates. It would therefore cost more to borrow money, making investment in new projects that much more improbable.

Where shipping jobs had a regularity about them in the well-established routes that have been used by shipping companies, now threats to cargo ships could snag supply chains, bringing about higher costs and a loss of confidence for businesses and consumers.

A shorter conflict would obviously be the best for the global economy. A growth rate of 3.3% was expected this year, prior to the war in the Middle East, according to the International Monetary Fund.

There are no changes to this prediction as yet, but the IMF say that economic problems with regards to trade, and instability in the financial markets are both likely to create complications in the world economy.

It is the cost to industry of a rising energy price that will have the most dramatic effect. A The benchmark for the price of crude oil, Brent crude is already trading at levels that have not been known for the at least 18 months.

Problems with the supply of oil and gas through the Strait of Hormuz are already having a detrimental effect. A fifth of the daily production of these two resources are carried from the Middle East through this conduit. It is possible that it will become too dangerous for ships to travel here in the coming weeks and months.

The price of natural gas could increase dramatically, with stockpiles not at levels they were a year ago and filling them to meet the worlds’ demands could cost industry and consumers.

Pressure resulting from the worsening situation in the Middle East will, according to some experts, cause such markers as the inflation rate in the EU to rise, and the likelihood is that EU growth could have a half a percentage point trimmed off of the expected figure.

Consumers at the petrol pumps are feeling the pinch, already, with Germany experiencing double digit rises in the price of diesel and petrol, and the UK is not far behind.

Industry in Asia will be most hard hit. Almost 90% of the Liquified Natural Gas and Crude Oil making its way through the Strait is destined for this region. China has recently predicted low growth figures for this year. Inflationary pressure can only make this more fragile.

India, with its huge marketplace in the Middle East is sitting on resources that would normally be making their way to the region. India and China could be the worst hit by the war.

A large concern is that one third of the world’s supply of urea, a main constituent of fertilizer, travels through the strait. This will impact on food production to a remarkable extent, affecting half of the world’s supply. Prices of sulphur, also used in the production of fertilizer, have shot up too.

These materials could be delayed in ports affected by the conflict. Prompt delivery is crucial to sustainability and therefore to the viability of the end product, and rerouting is an unnecessary expense both in time and money.

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