The on-again, off-again war between Iran, the United States, and Israel — currently heating up again after a short-lived preliminary peace deal — has increased the cost of goods and disrupted supply chains globally. The impacts are likely to persist long after the conflict eventually ends, says Michael Gravier, Ph.D., chair of Bryant University’s Marketing department.
“Inflation is going to keep going up,” says Gravier, an expert on logistics and supply chain management.
He adds that the consequences of the war that has repeatedly closed the vital Strait of Hormuz go beyond rising oil prices.
“We have a heavy dependency on fossil fuels; natural gas comes out of [that region] as do a lot of ingredients for fertilizers right at a time that crops are being planted,” he says. “We’re on track for some massive starvation in certain parts of the world because there won't be enough fertilizer. And Americans will pay more for food, for sure.”
Today’s trading system
Since the end of World War II, nations have set up a global system geared toward efficient trade, he says. “Unfortunately, it takes very little to destabilize a system like that. It can be very brittle, especially for extracted resources that are only found in a few places,” says Gravier.
The Red Sea shipping attacks by Yemen’s Houthi rebels in the early 2020s were the “canary in the coal mine” for what’s happening now with Iran, Gravier says.
“We had 60 or 70 years [after World War II] where supply chains could proliferate and connect across the world because we had free trade and efficient logistics systems. But then, the United States started losing interest in global security and policing,” he says.
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Short of a full-out ground war, it’s unlikely that the U.S. will be able to deter countries like Iran by military means, says Gravier, who helped run the U.S. Air Force’s logistical operations in the Gulf War prior to becoming a university professor.
“We haven't been able to stop the Somalis from being pirates,” he notes. “They’ve got nothing but a boat and a gun, but how much more do you really need?”
For the Iranians, the lesson isn’t lost that the U.S. wasn’t willing to risk a full-scale war even to protect a vital strategic asset, adds Gravier.
“It's kind of like when the bear finds your beer cooler at the picnic. You’re not willing to shoot the bear, and he knows it, so he just sits there rummaging through the cooler,” he says.
Workarounds are costly, risky
Building pipelines and rerouting maritime traffic around danger zones could alleviate some supply chain issues for fossil fuel products, but infrastructure projects take years to complete, and alternate routes increase shipping costs that, ultimately, are passed down to consumers.
“There is a lot of infrastructure damage in the Middle East already because of the war. In some cases, it will take years to rebuild. A significant percentage of global fossil fuel production has already been impacted by damage from the attacks,” Gravier points out. “There’s also a trust issue: Who is going to invest in rebuilding when they see how vulnerable everything is?”
“There is a lot of infrastructure damage in the Middle East already because of the war. In some cases, it will take years to rebuild."
He adds that the U.S. domestic oil industry cannot produce its way out of the problem.
“This war has proven just how wrong the mindset of ‘drill baby drill’ to make us energy independent is,” asserts Gravier. “We can drill for all the oil we want, but if there's an event on the other side of the world that drives up prices, that oil's not going to stay in the U.S. It’s going to the markets where companies can make the most money.”
More than gas prices are affected
It’s not just oil, natural gas, fertilizer, and other fossil fuel products that are being affected by supply chain disruptions, stresses Gravier.
“We were using these routes to ship things like clothing that were incredibly cheap; that era may be over,” he says, pointing out that both Iran and the U.S. have discussed a postwar scenario where one or both charges safe-passage fees on vessels transiting the Strait of Hormuz. “They're going to get more expensive, just because the cost of shipping has gone up.
“Now those goods don’t look like such a good deal, which means we are going to see the demand start to roll back at the consumer level,” he says.
As profound as the potential impact on U.S. pocketbooks and spending habits may be, they will likely pale in comparison to the economic and political effects the Iran war will have in other parts of the world, says Gravier.
“This is an event that is going to proliferate unrest and highlight the shortcomings in economic systems around the world,” he says. “The U.S. will see an impact, but we have a very low dependency on global trade unlike places like Europe and Asia, which are very dependent on trade.”
“This is an event that is going to proliferate unrest and highlight the shortcomings in economic systems around the world."
Down the road, stubbornly high energy prices and hobbled free trade could also slow down AI progress, says Gravier, especially if dependence on fossil fuels continues and development of alternative energy sources like solar and wind — which are far less reliant on stable supply chains — continues to be handicapped.
The war could also push nations to speed up adoption of alternative energy.
“People have realized that, strategically, banking on that part of the world is just not a good idea, and that there are alternatives,” says Gravier. “Sunshine and wind are everywhere.”