What companies can do to mitigate risks of Middle East conflict

For years, multinational companies operated in the Middle East with the belief that while politics could flare up, trade would largely continue. That assumption, while once reasonable, is now under serious strain. The war between Israel and Iran leaves companies facing the prospect of major operational disruption. Political instability in the Middle East is not new. From the Iran-Iraq Tanker War in the 1980s to the 1990 Gulf War, the region has experienced repeated shocks. Yet despite these disruptions, commercial flows (particularly energy) have largely continued. That continuity is now threatened. As long-time adversaries Israel and Iran exchange air strikes and retaliations, and the US repositions naval assets to the region, companies doing business in the Middle East are confronting a hard truth: supply chains are not protected from conflict; they are increasingly shaped by it. The war poses serious operational risks – not only for companies with direct exposure in the Middle East, but also for global firms reliant on the region’s shipping corridors. Vital routes through the Strait of Hormuz and major regional ports such as Jebel Ali, Sohar and Fujairah serve as critical nodes in global supply chains, handling oil, liquefied natural gas, container freight, auto parts and electronics bound for markets across Asia and Europe. Disruptions in the Gulf ripple outward, driving up freight costs, delaying shipments and straining inventory systems around the globe. Energy, manufacturing and logistics firms, even those with their headquarters in Europe, Asia or North America, remain tightly bound to these flows. A case in point is the Strait of Hormuz, the narrow waterway that links the Gulf to the Arabian Sea. About one fifth of the world’s oil passes through this chokepoint. It also functions as a vital artery for container traffic in and out of Dubai’s Jebel Ali port. Since the war started, insurance premiums for ships passing through the strait have jumped more than 60 per cent, reflecting fears of missile attacks and electronic interference . Freight rates for large crude carriers from the Gulf to China have more than doubled. Many shipping firms, including Maersk and Hapag-Lloyd, began diverting vessels around Africa’s Cape of Good Hope months ago to avoid attacks from Houthi rebels in the Red Sea. These detours have already introduced delays and higher fuel costs. The Israel-Iran conflict has expanded the threat zone into the Gulf and eastern Mediterranean, prompting some tanker companies like Frontline to refuse new contracts through Hormuz. The first step in response is clear-eyed stress testing. Too often, this takes the form of box-ticking exercises. But in the current environment, firms must go deeper. An effective stress test maps all critical inputs – logistics routes, suppliers, warehousing nodes – and then runs real scenarios: What if the northern Israeli port city Haifa is offline for two weeks? What if Hormuz is blocked for five days? Overflight permissions above Israel, Iran and nearby airspace have already been revoked or restricted, forcing carriers to reroute flights and suspend operations. The operational cost is no longer hypothetical. The goal isn’t to predict the future, but to prepare for plausible disruptions. Each scenario requires firms to estimate recovery time, switching costs and the impact on customers. Where backup options don’t already exist – alternative ports, substitute suppliers or inland storage – they must be established before disruption forces a reaction. The urgency is particularly acute for exporters racing to shift goods ahead of the US administration’s “liberation day” tariff hikes – most visibly seen in the surge in container bookings between Asia and the US. When companies front-load goods, disruptions in major shipping lanes suddenly become a major vulnerability. Even a small delay in a critical route like the Gulf, Red Sea or Hormuz can disrupt timed inventory strategies, sharply increase costs, and risk stock-outs. Another pressure point is insurance. Coverage for assets, cargo and personnel in the Gulf is being rapidly repriced, as war-risk premiums on tankers soar. Boards must reassess their financial shields. Which facilities and transit corridors are still insurable? Are policies clear on what constitutes a conflict zone? Is coverage structured to remain valid amid escalation? In this environment, firms with deep local networks are better placed to cope with uncertainty. Local partners offer more than market access – they provide intelligence, continuity and leverage. When international trade routes are under stress, it is local agents who know which port remains operational, which corridors are open and which ministries are accessible. In a crisis, corporate headquarters are often the last to know. Local partners are often the first. This does not mark a full withdrawal from the region. The Middle East remains central to global energy and shipping flows. But it does signal a recalibration – away from blanket engagement and towards more selective, risk-adjusted exposure. Companies with assets near active conflict zones are likely to reallocate rather than withdraw, shifting operations towards more stable Gulf states such as the UAE or Oman. As a result, regional supply chains are being quietly restructured, not for speed or cost, but for resilience. This shift was already in motion. The latest escalation will only accelerate it. For corporate boards, the question is no longer whether to act, but how fast. That starts with diversifying suppliers and routes to avoid over-reliance on any single area. It also means identifying which products and markets matter most, and protecting those first. Carlos Cordon is IMD professor of strategy and supply chain

What companies can do to mitigate risks of Middle East conflict

Shipping costs, airspace closures and insurance pressures force firms to rethink logistics and regional operations

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