March 31, 2026

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One Month In: Economic Imbroglio and Supply Chain Disintegration

AP Photo/Altaf Qadri

A month into the Iran War, hostilities show no signs of letting up and the realities of disrupted global supply chains and destroyed energy assets are setting in. The Houthis, the Iran-backed group in Yemen, have now become party to the conflict, signifying that the economic shockwaves caused by the closure of the Strait of Hormuz may soon be compounded by disruptions in the Bab al-Mandeb Strait, through which nearly 15 percent of all global maritime trade passes. As states rush to safeguard their supply chains — oil, gas, chemicals — the extent of the downstream economic effects of the war is only now starting to crystallize. With some vessels granted passage through the Strait of Hormuz, the economic effects may become disparate for those that fall under Tehran’s ‘non-hostile’ designation and are willing to pay hefty dues at the de facto toll booth it has erected, and those that do not. Aside from energy markets, the defense industrial base, and various consumer goods, the agricultural sector is also afflicted by the protracted war, with fertilizer bottlenecks having dire consequences on the global food ecosystem — whose future is now dependent on how long maritime trade continues to be upended and whether supply chains can be reconfigured to absorb the initial shock of disruption.

Two vessels of the world's largest shipping conglomerate, the state-owned Chinese COSCO Shipping, turned back into the Persian Gulf on Friday just a few nautical miles from the Strait of Hormuz — seemingly not approved for transit by the Islamic Revolutionary Guard Corps (IRGC). The two ships had displayed messages signaling their Chinese ownership, but this did not yield safe passage. On Monday, the ships fared through without an issue — showing that even for PRC-flagged vessels, passage remains uncertain and irregular. Days earlier, COSCO restarted general cargo container bookings for routes to and from ports in the Middle East, announcing it would use the land bridge through Khorfakkan or Fujairah port to Abu Dhabi for the intra-Gulf leg of its shipments. Nonetheless, shipping data from the first month of the Iran War indicates some vessels have been able to pass through the Strait.

The People’s Republic of China (PRC) and other countries deemed non-hostile have been successful at hatching limited deals with Tehran to alleviate their energy crises. Last Saturday, Pakistan’s Minister for Foreign Affairs, Ishaq Dar, announced that 20 ships were allowed safe passage. Data from Keplr, a business intelligence service, show that the ships that have been able to transit the Strait of Hormuz were primarily Iranian, Greek, and Chinese-owned. While Athens almost certainly belongs to the hostile block of states that are not allowed passage by Tehran, some Greek shipowners have sent through ships without formal approval of the IRGC at premium prices.

The Gulf states, which are almost entirely dependent on imported foodstuffs, are increasingly using different ports — such as those in Oman or Saudi Arabia — to receive cargo ships. The Jeddah port in Saudi Arabia, which lies on the Red Sea, is expecting an influx of cargo ships in the coming weeks. However, global shipping companies still remain concerned about their passage through the Red Sea. The Houthis entering the fray, with strikes on Israel last Saturday, evokes memories of the months-long debacle after the October 7 Hamas attacks in which Houthi-coordinated attacks on commercial vessels essentially held the entire maritime trade sector hostage. For months it forced companies to take a costly and timely alternative route along the southernmost tip of the African continent, the Cape of Good Hope. During the during these 18 months, the group attacked more than 100 vessels, including oil tankers transiting the Red Sea, before a ceasefire in May 2025 was brokered.

Experts believe that  the Houthis may restart their attacks on Saudi Arabia, which would not be just limited to U.S. assets in the region, but also to critical infrastructure like the Jeddah port. Some of these alternative ports, including Salalah port in Oman, have recently been struck by drones — essentially paralyzing the few logistics hubs that serve as a lifeline for many Gulf states. Global shipping conglomerate Maersk, which had resumed shipping through the Bab al-Mandeb Strait after the ceasefire, has now announced it is ceasing some of its transits through this treacherous chokepoint.

The daily minutiae of the Iran War and its effect on energy and stock markets have overshadowed some of the tangible effects on daily life. Work from home mandates have been cobbled together across Asia to dampen energy demand. Curfews for restaurants, shops, and nightlife have been put in place in Cairo, and global airlines have commenced hiking their rates. Over the weekend, the IRGC announced that they had targeted two aluminum factories in the Gulf — one in the United Arab Emirates (UAE) and one in Bahrain — sending the price soaring to a four-year high. The Gulf accounts for around eight to nine percent of global aluminum supply, with the supply chain already impacted by the disrupted shipping in the Strait of Hormuz. Aluminum is used in the defense industrial base to manufacture everything from aircraft to missile systems. But aluminum is also extensively utilized for everyday purposes — ranging from smartphones to soda cans.

Potentially most disastrous long-term is the fertilizer squeeze that is plaguing farmers globally. Kuwait, the UAE, Qatar, Iran, Bahrain, and Saudi Arabia all are important suppliers of various fertilizers including sulfur, urea, and ammonia. Around a third of global fertilizer supply passes through the Strait of Hormuz, used by farmers globally. The nature of a harvest cycle (one in each hemisphere) means that the downstream effects of the Iran War on food security will only fully materialize in the coming months. Current supply disruptions are coinciding with the Northern Hemisphere’s spring planting season, potentially leading farmers to cut back on its usage, and inevitably leading to less plentiful crops when the harvesting season comes around in the fall. With the prices of fertilizers continuing to rise, the Iran War threatens to upend the linchpin of global food supply if alternatives are not found. Russia, as largest global exporter of nitrogen fertilizers, as well as the PRC and Russia, however, may see demand increase.