Hormuz trade blockage impacts global supply chains beyond oil: UBS

A UBS report highlights that the Strait of Hormuz trade disruption's impact extends beyond oil and gas. It's straining global supply chains for industries like auto and chemicals, with the key issue being material availability, not just price.

The disruption of trade through the Strait of Hormuz is not only impacting global oil and gas markets but is also affecting several other key industries dependent on commodities sourced from the Middle East, according to a report by UBS.

The report highlighted that while oil and gas remain the most visible commodities affected by the ongoing conflict, a broader set of supply chains is also under strain due to the blockage of this critical trade route. It stated, "While oil and gas are the globally relevant high profile commodities that have been unable to pass through the Strait of Hormuz since the start of the conflict, there are other commodities for which the region is an important source for global supply chains".

Impact Beyond Energy Markets

It noted that the Gulf Cooperation Council (GCC) region accounts for more than 10 per cent of global exports across around 13 commodity groups, making it a crucial supplier for various industries worldwide. According to the report, sectors such as automobiles, chemicals, metallurgy, and home and personal care products are among those heavily dependent on these commodities.

Availability vs. Price: The Core Challenge

The disruption in supply from the region is creating challenges not just in terms of prices but also in terms of physical availability of key inputs required for manufacturing. The report stated that in many cases, the issue may not be a sharp rise in input costs, as some of these commodities form a relatively small part of the overall cost structure. However, the bigger concern is the lack of availability of these materials, which can make manufacturing processes unviable.

Sector-Specific Vulnerabilities

For instance, the automobile sector relies on multiple chemical and metal-based inputs sourced from global supply chains, including those originating in the Middle East. Any disruption in supply can delay production and affect output levels.

Similarly, the chemical industry depends on feedstock and intermediate products from the region, making it vulnerable to supply interruptions.

The metallurgy sector, which requires specific raw materials for processing and manufacturing, is also exposed to such disruptions.

In the case of home and personal care products, manufacturers depend on certain speciality chemicals and raw materials sourced from global markets, including the GCC region, which are essential for production.

Prolonged Disruption a Threat to Manufacturing

The report emphasised that the impact of the Strait of Hormuz disruption is therefore broader than just energy markets, as it affects multiple downstream industries through supply chain linkages.

So the report suggested that prolonged disruption in the region could continue to impact manufacturing activity across several sectors due to supply constraints rather than just price pressures. (ANI)

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