Israel–Iran Tensions Disrupt Supply Chains Beyond the Red Sea

Table of Contents

1. In Focus: Strait of Hormuz

2. Costs & Insurance Volatility
3. Supply Chain Reroutes & Congestion
4. Air Freight Pressure Points
5. Strategic Outlook

The recent escalation in conflict between Israel and Iran has triggered a new wave of disruption across global trade corridors. What began as a regional issue is now spilling into critical maritime and air freight routes, notably the Strait of Hormuz and Middle East airspace. These developments are raising the risk profile for ocean and air cargo alike, extending far beyond the ongoing Red Sea crisis.

While some impacts are already being felt in the form of rising oil prices, longer transit times, and elevated insurance premiums, the situation remains dynamic. Importers and supply chain managers should stay alert to shifting risk levels and prepare contingency plans to navigate a more volatile trading environment.

This post will be updated as the situation evolves and new information becomes available.

In Focus: Strait of Hormuz

The Strait of Hormuz is one of the most strategically vital chokepoints in global trade. Approximately 20% of the world’s oil and a significant share of liquefied natural gas (LNG) pass through this narrow waterway, making it a critical artery for energy and container shipping.

In June 2025, Iran’s Parliament approved a motion to close the Strait to commercial traffic—a move that would mark a severe escalation if ratified by the country’s Supreme National Security Council. While the Strait remains technically open for now, the political signalling alone has sent shockwaves through global supply chains.

Adding to the uncertainty, the UK Maritime Trade Operations (UKMTO) has issued multiple alerts over electronic interference in the area. Ships transiting the Gulf and Hormuz have reported GPS spoofing and signal jamming—complications that can severely affect navigation, scheduling, and safety. These incidents suggest a higher level of operational risk, even in the absence of physical blockades or attacks.

Although no major commercial vessel attacks have been confirmed in the Gulf to date, shipping lines are exercising extreme caution. Several are reviewing their exposure to key Gulf transhipment hubs like Jebel Ali and Port Khalifa, with some carriers already rerouting or adjusting service schedules.

The Strait’s importance—and vulnerability—means any disruption here would ripple rapidly through global freight networks, driving up costs and damaging schedule reliability across regions far beyond the Middle East.

Costs & Insurance Volatility

The ripple effects of instability in the Strait of Hormuz and surrounding regions are being acutely felt in freight pricing and risk coverage. Oil markets reacted swiftly to the news of potential strait closure, with Brent crude spiking by up to 9%, briefly reaching over $80 per barrel. Although prices have since moderated, they remain volatile. Analysts warn that a confirmed closure could send oil prices surging past $120 per barrel, injecting further fuel into global inflation.

This price volatility has triggered a chain reaction in the shipping industry. Tanker rates rose sharply in mid-June, climbing over 30% in some segments. Meanwhile, war risk premiums and bunker adjustment factors (BAFs) have both increased—some shipping lines now add Middle East surcharges or “emergency” BAFs to manage the cost of operating in high-risk zones.

Insurance costs are also rising. War risk premiums have doubled for vessels transiting the Gulf and the Strait of Hormuz, adding tens of thousands of dollars per voyage. Insurers are tightening terms, and underwriters are becoming more selective about coverage in politically sensitive waters.

The combined effect? Importers and exporters are seeing higher freight costs, longer transit times, and reduced carrier flexibility—all factors that can severely impact margin-sensitive or time-critical supply chains.

Supply Chain Reroutes & Congestion

The Red Sea crisis continues to stretch into its second year, with most shipping lines still avoiding the Suez Canal in favour of the Cape of Good Hope. This adds 10–14 days to many transit schedules, increasing vessel demand and equipment imbalance.

Recent hopes for a return to the Suez route—spurred by a 15% discount offered by the Suez Canal Authority—have dimmed again in light of broader Middle East instability. CMA CGM, which had tested a return to the Suez Canal earlier this year, is now widely expected to revert to Cape routing indefinitely.

The added strain on southern transits is creating downstream effects. Port congestion in transhipment hubs such as Colombo, Port Klang, and Singapore is rising, as vessels bunch to manage longer roundtrips. There’s also growing concern over Gulf transhipment nodes like Jebel Ali and Port Khalifa, where regional tensions could disrupt feeder services and schedule integrity.

As rerouting becomes the new normal, the cost of doing business through traditional Middle East and Europe–Asia lanes has fundamentally changed, leaving supply chain planners in need of new models for reliability and risk.

Air Freight Pressure Points

While maritime traffic faces strategic chokepoints, the skies above the Middle East are also narrowing. Airlines have responded to the Israel–Iran escalation by rerouting or cancelling flights that previously passed through airspace over Israel, Iran, Iraq, and Jordan.

These detours have resulted in longer flight times, tighter capacity, and increased fuel usage—particularly affecting services between Europe and Asia-Pacific. For importers and exporters handling time-sensitive goods like electronics, pharmaceuticals, and perishables, the impact is immediate.

Air freight rates have begun to edge up as airlines recalculate their cost bases. Extended transit times and more circuitous routings reduce overall lift capacity, creating a bottleneck during what is already a tight capacity environment.

For Australia and New Zealand, which rely on Middle Eastern carriers for key connectivity, these changes present reliability challenges, especially for inbound shipments routed through Gulf hubs such as Doha and Dubai.

Strategic Outlook

Supply chain professionals across Australia and New Zealand need to be proactive as the Middle East conflict introduces systemic risk across global trade corridors. While some developments—like a full closure of the Strait of Hormuz—are still only theoretical, the implications of rising threats are already translating into cost, capacity, and reliability challenges.

Here’s what to watch for and act on:

• Monitor political escalation around the Strait of Hormuz and Red Sea. Any confirmed closures or attacks could trigger immediate shipping disruption and cost escalation.
• Build agility into supply chain routing. Consider air–sea combinations via Asia to hedge against long-haul maritime delays from Europe or the Gulf region.
• Talk to us about insurance coverage and routing options. Make sure war risk premiums and contingency routes are factored into planning models.
• Reassess lead times and safety stock levels—particularly for goods sourced from Europe, Middle East, or transiting through affected ports and airspaces.
• Stay in close contact with suppliers and logistics partners to detect upstream bottlenecks early and develop alternative sourcing or fulfilment pathways.

Risk is unlikely to return to pre-2023 levels in the near term. As maritime and air corridors continue to shift in response to geopolitical pressure, the most resilient supply chains will be those that are flexible, well-informed, and ready to pivot.

At KLN Oceania, we are actively engaging with our global partners and suppliers to design the most reliable routing options available under current conditions. We’re committed to keeping our customers informed as the situation evolves and are working closely with stakeholders to develop realistic, proactive mitigation plans. If you’d like support navigating potential risks to your supply chain—or want to explore contingency strategies tailored to your business—we invite you to get in touch with us.