5 Supply Chain Experts On How Companies Can Navigate Iran War Disruptions

This article was originally published on Inc.com.

Oil prices continue to ricochet, raising fresh concerns about supply chain disruptions that could ripple through the global economy—and into businesses far beyond energy itself. That uncertainty was reinforced this week when US Energy Secretary Chris Wright said there were “no guarantees” prices would fall in the weeks ahead.

Prices remain elevated in large part because the Strait of Hormuz—a critical maritime chokepoint that transports roughly 20 percent of the world’s daily oil supply—remains effectively closed, with no clear signs it will reopen soon. Iran’s new Supreme Leader, Mojtaba Khamenei, has described keeping the strait shut as a “tool to pressure the enemy,” raising the risk of a prolonged disruption. Deutsche Bank has warned that oil could surge toward US$200 a barrel if Iran successfully enforces a full closure.

Oil was hovering above $102 a barrel as of Tuesday afternoon, and some experts say the world should brace for prices in the $140 to $200 range. That kind of spike would ripple quickly through supply chains, pushing up costs for food, medicine, packaging, transportation, and consumer goods. Spot rates for air cargo are climbing, with rates to North America up 58 percent, according to data from BSI Consulting, and container shipping rates jumping 8 percent globally. Business owners could see prices rise from four to seven percent, according to Aaron Lober, a manufacturing intelligence lead at CADDI, an AI data manufacturing platform. 

For businesses, the implications go well beyond fuel costs. Knowing where your company is exposed—across suppliers, logistics, and pricing—is the first step toward protecting it in what could be an extended period of volatility.

Here’s what supply chain experts advise businesses should be monitoring amid the Iran war.

Optimize shipping

Rising fuel costs will start to show up in the cost of freight in one to two billing cycles, usually depicted as a fuel surcharge. That’s according to Nishith Rastogi, founder and CEO of Locus.sh, an AI logistics platform. For companies that are looking to switch up their shipping lanes, he advises that they factor in more time for delivery delays, which can extend delivery by up to 10 days. 

“Retailers can reduce the impact by improving routing efficiency, truckload utilization, and mode choices so that fewer miles are exposed to fuel volatility in the first place,” Rastogi says.

One way to cut down on costs, Rastogi shares, is for businesses to turn to zone-skipping routes, or a strategy of having trucks that are usually packed with multiple shipments travel straight to a center that’s more proximal to the final origin destination, rather than making multiple stops in different hubs. 

Look at what the competition is doing

Matt Lekstutis, ​​director of a global supply chain organization at Efficio, encourages companies to turn to databases that will map out a company’s international shipping patterns, which can help ID where your buyers are importing from. Even if your supply chains are pretty straightforward, specific vendors could still be significantly impacted, which would have downstream effects for your own company. Something that founders can easily do, though, is look at what their competitors are doing, which could help inform a company if they’re the only one importing through a specific route, like the Hormuz.

“It tells you something about your competitive position and how you might want to shift your supply base as well,” he explains. 

Replenish your inventory (within reason)

When price volatility is expected, some companies have looked to replenish their inventory reserves to lock in competitive pricing. The most recent example of doing so was last year, when companies stockpiled goods in an attempt to get ahead of US President Donald Trump’s new tariff rates. If you’re concerned about long-term pricing impacts, you should be speaking with suppliers and setting aside cash to do so now, says Bill Currence, co-founder and managing partner of Cornerstone Consulting Organization, based in Toledo, Ohio.

Of course, Currence acknowledges that companies must recognize that pricing shocks could be short-term and be prepared to accept that. He says that one company the firm worked with last year worked heavily with graphite and in an attempt to lock in competitive pricing, purchased a two-year supply of graphite thinking it was the best move.

“Three months later, graphite was 50 cents a pound instead of $1.50 a pound, so it’s also something that could kill you in the end,” Currence says. “That’s why people need to have competitive intelligence, they need to peel somebody out and say ‘let’s look at the data’.”

Distinguish structural damage from temporary disruption 

“Not everything that was disrupted during the crisis will recover automatically when the Hormuz reopens,” writes David Fairnie, a supply chain consultant at BSI Consulting. “Some disruptions will have caused structural damage, supplier insolvencies, customer relationship deterioration, regulatory consequences, contract terminations, and skills or capacity losses that do not reverse on their own.”

Fairnie advises that business owners carry out what he calls a structural damage assessment, which takes a look at what disruptions will fix themselves over time (such as bottlenecks or lapses in short-term inventory) versus some of the aforementioned problems that will persist in the long-term and need active management. 

Expect insurance premiums to stay elevated

Rising security risks directly cause insurance to spike, and, in this case, war-risk premiums have gone up for ships navigating waterways around the Gulf of Persia. While these premiums can rise quite quickly, that’s not the case for them reversing course even when conflicts begin to stabilize. That’s according to Tony Pelli, Practice Director Security and Resilience at BSI Consulting.

“Insurers typically want to see sustained stability before reducing rates again,” Pelli says. “In practical terms, we’re looking at a timeline where war-risk premiums stay elevated for several months.”