The Middle East conflict: Why most organisations are underestimating their supply chain risk

Authors: Matthew Lekstutis, Paul Baris, Hans Koenigshofer 

Escalating conflict in the Middle East is once again testing the resilience of global supply chains. For many organisations, the immediate focus has been clear: oil prices, LNG flows, and rising freight costs. However, for senior procurement and supply chain leaders, the real challenge is understanding what this disruption reveals about how supply chains now behave under stress—and acting before those risks materialise in cost, availability, and service. 

The challenge: disruption is deeper, broader, and longer-lasting than it appears 

The closure of key corridors such as the Strait of Hormuz is already creating immediate disruption across logistics and energy markets. Transit times are extending, routes are shifting, and costs are rising. 

However, focusing only on these visible impacts risks missing the more important shift underway. 

The Middle East is not just a logistics bottleneck. It is a critical source of upstream inputs that sit high in global supply chains. LNG, petrochemicals, fertilisers, and industrial gases such as helium all depend on the region. These inputs feed into industries ranging from agriculture to semiconductors, often with delayed but disproportionate downstream effects. 

As Paul Baris, Principal at Efficio, highlighted in our recent webinar The Middle East conflict: What supply chain and procurement leaders need to know now, “the big risk is sustained material inflation … anything that is energy intensive … will trickle down into the rest of our cost structure.” 

At the same time, organisations often underestimate the duration of disruption. Even if hostilities ease, supply chains do not simply reset. Shipping networks, energy systems, and commercial markets recover in stages, not instantly. 

This creates a second, less visible challenge: the assumption that normalisation will be quick. 

In reality, organisations should expect disruption to continue for months rather than weeks, as evidenced by the actions governments around the world are taking. 

To reinforce this point, the heads of the International Energy Agency, International Monetary Fund, and World Bank Group issued a joint statement highlighting that the impact of the conflict is “substantial, global, and highly asymmetric,” with energy importers, particularly low-income countries, most exposed. They also emphasised that even if shipping flows resume, global supplies of key commodities will take time to recover, with fuel and fertiliser prices likely to remain elevated due to infrastructure damage. 

Governments are already acting on this expectation. In the UK, ministers have initiated contingency planning for potential disruptions across food, fuel, jet fuel, ammonia, and CO₂. In India, the Prime Minister convened a Cabinet Committee on Security to assess cross-sector impacts, followed by coordinated action across ministries and industry to mitigate risks, including measures to prevent hoarding. Similar preparations are underway across Australia, Singapore, Japan, and the EU. 

The implication is clear: this is not being treated as a short-term disruption. As governments prepare for systemic and prolonged impact, organisations should reassess whether their own response reflects the same level of urgency and realism. 

Where organisations are falling short 

Most organisations are making two critical mistakes. 

1. First, they are focusing on the obvious. Oil prices, freight rates, and shipping delays dominate internal discussions. These are important, but they represent only the surface layer of risk — and often lag the underlying dynamics. 
2. Second, they are assessing exposure at the wrong level. Many organisations still evaluate risk primarily at Tier 1 supplier level or finished goods. 

This misses where the real exposure often sits. As SANY COO for Global Production Operations Hans Koenigshofer noted during the webinar, “there is a supply chain visibility issue that we need to go after.” 

Hidden dependencies in Tier 2 and Tier 3 suppliers, particularly around energy-linked inputs, are where disruption translates into sustained cost and availability challenges. By the time these impacts appear in supplier pricing or production delays, the opportunity to respond proactively has often passed. 

What many organisations are missing: second- and third-order effects 

While first-order impacts such as higher energy prices and extended transit times are visible, the more significant risks often emerge in second- and third-order effects.  These include: 

• Supplier distress and cash flow pressure 
• Force Majeure events 
• Informal allocation of capacity to priority customers 
• Demand volatility in affected regions 
• Downstream margin compression 

These effects are not always visible and do not impact all organisations equally. They create competitive asymmetry which will define winners and losers.  Some organisations will secure supply and protect margins while others will be forced into reactive decisions under pressure.

The insight: this is a structural reset, not a temporary disruption 

The current situation should not be treated as a short-term disruption event but part of a broader shift in how geopolitical risk is priced into global supply chains. 

Risk premiums are now being embedded across freight, insurance, energy, and supplier economics. Even after routes reopen, costs and volatility are unlikely to return to previous baselines. 

At the same time, as Koenigshofer notes, “this [disruption] is actually cascading … in a completely different way than the other crises we went through.” 

Unlike COVID or the Ukraine war, which had more regional or demand-driven characteristics, this disruption is simultaneously affecting logistics, energy systems, and upstream materials. The result is a multi-layered impact that unfolds over time. 

This is why these events should not be viewed as a temporary disruption. It represents a structural shift toward supply chains that are increasingly shaped by risk, energy, and geopolitics — where access is no longer fully neutral. 

What leading organisations are doing differently 

Leading organisations are not simply reacting faster. They are responding differently, starting with how they define the problem. 

• They are moving beyond surface-level visibility to a more precise understanding of exposure.  Rather than focusing on Tier 1 suppliers or finished goods, they are mapping how critical materials, feedstocks, and intermediate inputs flow through their supply chains, and where those intersect with geopolitical risk, energy dependency, and constrained logistics corridors. This shift from “who we buy from” to “what we depend on” allows them to identify risks that are otherwise invisible until they materialise. 
• From there, they are reframing how they plan. Instead of building around a single expected outcome, they are actively modelling multiple scenarios; not just in terms of duration, but in terms of how disruption propagates. This includes understanding when cost impacts will hit the P&L, how availability may tighten across specific inputs, and how supplier behaviour may change under pressure. As Koenigshofer noted, “think about several scenarios. If this crisis continues for one month, six months, a year. What do you do?” The key difference is that leading organisations are not just running these scenarios — they are pre-defining responses and decision triggers against them. 
• They are also acting earlier to secure optionality. This is not about broad, defensive moves such as blanket stockpiling. Instead, it is targeted and deliberate: qualifying alternative suppliers in high-risk categories, pre-agreeing logistics options, and selectively building inventory buffers where availability risk outweighs cost efficiency. 
• In parallel, they are managing cost dynamics more actively. Rather than accepting supplier-driven increases at face value, they are decomposing cost drivers, challenging assumptions, and ensuring that temporary disruption does not become structurally embedded in their cost base. This requires a more forward-looking view of cost: understanding not just how much prices may change, but when those changes will impact financial performance. 
• Finally, leading organisations are rethinking how decisions are made. Rather than relying on temporary “war rooms” activated during disruption, they are establishing permanent, cross-functional governance with the authority to act quickly. Procurement, supply chain, finance, engineering, and commercial teams are brought into a standing decision framework, with clear ownership and the ability to move without delay. 

This reflects a broader shift. As supply chain risk becomes more continuous rather than episodic, the ability to respond cannot depend on ad hoc crisis structures. It must be embedded into the operating model itself. 

The cost of inaction 

Organisations that fail to assess their true exposure risk sustained margin erosion as cost inflation cascades through their supply chains. Longer lead times and higher inventory requirements place additional pressure on working capital and cash flow. 

More critically, hidden dependencies can translate into supply interruptions that directly impact production and service levels. 

At a strategic level, the gap between organisations that act early and those that react late will widen. Those with greater visibility and optionality will be able to protect continuity and maintain competitiveness. Others will be forced into reactive decisions under pressure. 

Conclusion 

The Middle East conflict is not just another disruption to manage. It is a stress test of how well organisations understand their own supply chains. 

The key question is not whether conditions will stabilise, but whether your organisation has the visibility and preparedness to act before the impact becomes visible in cost or availability. 

As Baris summarised, “this is just yet one more example … we have to think about this more strategically and not as a tactical black swan event.” 

Organisations that move beyond the obvious, map their true exposure, and plan for multiple outcomes will be best positioned to manage both risk and opportunity in the months ahead.