How Global Manufacturing will be Impacted by the U.S.-Iran Conflict

Over the last decade, manufacturers around the world — including those in the fluid power industry — have dealt with challenges presented by the Great Recession, COVID-19 and various geopolitical tensions. The current conflict between the U.S. and Iran is the latest event expected to impact the global manufacturing industry.

New industry analysis from Jack Loughney, Senior Data Analyst at Interact Analysis, indicates the conflict and its aftermath is likely to cause delayed shipping, energy fragility and supply chain disruptions for manufacturers of all types.

As of March 16, the Strait of Hormuz, through which more than 20% of the world’s oil supply passes through, remains closed because of the conflict. This has caused shipping disruptions for natural gas, oil, and other goods, leading to increased freight and fuel costs.

Some countries’ maritime officials are cautioning against operating in the region as well due to safety and other concerns brought about by the conflict, bringing about additional shipping and logistics disruptions.

Because of these factors, Loughney said there are three parts of the global manufacturing industry that will most be impacted by the conflict between the U.S. and Iran:

• energy-intensive sectors,
• export-oriented manufacturing hubs, and
• demand for machinery and industrial equipment.

Energy-Intensive Sectors

Chemicals, metals and other energy-intensive sectors are expected to face further energy price increases due to the U.S.-Iran conflict according to Loughney’s analysis. These manufacturing sectors rely on liquified natural gas (LNG) and oil to power their operations.

But shipping delays caused by the conflict means higher costs for LNG and oil, leading to higher energy costs for manufacturers, many of whom — particularly in Europe — are already dealing with high energy prices because of the Russia-Ukraine war.   

For fluid power companies serving these markets, this could lead to lower demand for their hydraulic and pneumatic technologies. Customers will have to allocate more towards energy costs, leaving less available for other operational expenses such as new machinery and components.

Export-Oriented Manufacturing Hubs

Asia’s manufacturing hubs such as Indonesia and Vietnam export billions of dollars’ worth of goods to other parts of the world. To do so, they typically utilize the Suez Canal.

However, Loughney said they are heavily reliant on the petrochemical output of the Gulf region and therefore likely to face the same rising input costs and potential freight disruptions as manufacturers in other parts of the world.