As Iran war hurts international trade, inflation looms large for the common man

Economics becomes the first casualty of any major crisis, and the current war in Asia West is no exception. As joint strikes conducted by Israel and the US on Iran have left a significant impact on international trade and the global supply chain, particularly after the Iranian forces blockaded the Strait of Hormuz, companies have resorted to air cargo services and alternative shipping routes for their international transactions, including both exports and imports.

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But that has not given any relief. If sources in the logistics industry are to be believed, airlines increased their freight charges by two to three times under the prevailing conditions. Even the shipping lines have also done the same. What is feared is that it will be the common people, including those in India, who would have to bear the brunt as overall prices head north.

Global air cargo capacity dips

The ongoing conflict has started impacting every sector, not just by disrupting the supply chain but also slowing down cargo movement and triggering a rise in costs. A source in the logistics industry told The Federal that global air cargo capacity has gone down by nearly 20 per cent after the war began, while that of the Gulf airlines has seen an overwhelming 93 per cent drop.

Increased security threats over the Gulf region and limited refuelling options have forced many flights to take longer routes, reducing cargo capacity. This has had the greatest impact on routes previously dependent on Gulf airlines, including trade routes to the Indian subcontinent.

Pricier air fuel increases overall cost

Longer routes have meant the airlines are being forced to shell out more for more fuel, the price of which has also soared by nearly 20 per cent in the wake of the war. The carriers have increased their operational costs, and both air freight and air fares have been impacted as a result.

Also read: What happens to India’s fuel supply if the Iran conflict worsens? | AI With Sanket

Companies looking to import or export at pre-agreed rates through air are not getting cargo space and are being asked to wait for long periods. Due to delays and uncertainty in maritime transport, many firms have decided to ship sensitive goods by air instead of sea, further straining the air cargo market.

Sea trade condition is worse

The situation is worse in maritime trade. Marine insurance companies, including P&I clubs, have cancelled war risk coverage for the Gulf region, prompting numerous ships to halt their journeys. According to a report, approximately 150 ships are stranded in the Gulf region, out of which 105 are waiting at sea and dozens at ports.

The shipping companies have imposed a war risk surcharge with immediate effect. An additional charge of approximately $2,000 per 20-foot container and approximately $3,000 per 40-foot container is being levied, sources said. This is rapidly making international trade dearer.

The Strait of Hormuz, one of the world's most important sea routes, has become virtually closed despite being technically open, as ships are avoiding transit due to security risks and lack of insurance.

Also read: Mourning Khamenei: Lucknow’s ties with Iran run deeper than geopolitics

The number of ships transiting this route has declined by more than 90 per cent. Maritime movement on the Red Sea route has also been cancelled, and some companies are diverting ships via the Cape of Good Hope in Africa, increasing both time and costs. Operations in Bahrain are completely shut down, while Jebel Ali Port in the United Arab Emirates is operating at a slower pace. Ports in other West Asian nations such as Iraq, Kuwait, Saudi Arabia, the UAE, and Qatar have also been affected.

Everyone is staring at inflation

These indications would trigger apprehensions in the mind of the common man. Already, kitchens at home and hotels are finding a shortage of LPG, which mostly comes from West Asia.

Also read: Could global gas supply disruptions threaten India’s energy security? | Capital Beat

If the current conflict continues for a long time, prices of other essential goods that are imported could also see a significant inflation, leaving the aam aadmi in the lurch.

(The article was originally published in The Federal Desh.)