Rough seas ahead: How are renewed geopolitical conflicts impacting supply chains?

Time of India

2 days ago

By Neeraj Bansal, Partner and Head, India Global, KPMG in India
As the old saying goes, without logistics the world stops. In today's volatile geopolitical environment, this couldn't be more true.
As tensions flare up across the globe, we are reminded just how fragile and interconnected our supply chains really are.
This fragility has again come into sharp focus with the renewed conflicts in the Middle East, which have reignited fears of supply chain instability and added fresh uncertainties to already strained global networks.
Since the start of the conflict, crude oil prices have fluctuated sharply, with brent crude surging past USD80 per barrel, reflecting the market's sensitivity to geopolitical risks.
The impact, however, goes beyond oil prices. Tanker operators changed course or halted mid-route, leading to increased freight costs. Shipping rates of supertankers more than doubled to USD60,000 a day. War-risk insurance premiums to Gulf-bound shipments also increased from around 0.2 per cent to 0.5 per cent within a week of the conflict.
The disruption wasn't limited to the seas. Airspace closures across the UAE, Israel, Qatar and Iraq forced cargo flights to take longer routes, leading to an increase in transit times and operational costs.
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All these have placed a renewed strain on global logistics, pushing up delivery times and transport costs across sectors.
How can India navigate evolving disruptions?
While global businesses grapple with the implications, for economies like India—deeply connected to the West Asian trade and energy flows—the stakes are even higher. With growth projected at 6.5 per cent this year and exports touching USD821 billion in FY25—up by 5.5 per cent—the country has been steadily moving towards a trade-driven, export-oriented economy.
But events like these can potentially halt the growth momentum.
For instance, the West Asia corridor is a key region for India's trade. With USD178 billion worth of trade with the Gulf Cooperation Council, any escalation in tensions in the region brings risks for Indian traders and manufacturers who depend on stable routes and predictable timelines.
Besides, there is also the energy angle. More than two-thirds of India's crude oil imports and 50 per cent of its LNG supply pass through the Strait of Hormuz—a narrow strategic waterway that connects the Persian Gulf in the west to the Gulf of Oman and the Arabian Sea in the southeast.
Any disruptions here can push up fuel prices, import costs and inflationary pressures. Although India isn't unprepared— considering strategic reserves and a diversified supplier base for energy imports—any further conflict escalation poses risks such as price shocks and transport delays.
Going ahead, India's resilience will depend on its ability to stay flexible by strengthening risk monitoring systems and adapting its trade and energy strategies in real time.
To strengthen energy security, India can further diversify its oil sourcing beyond conflict-prone regions through long-term deals and strategic partnerships. This includes deeper engagement with key suppliers such as Russia, Africa and Latin America. The current crisis also highlights the need for India to move away from traditional trade routes, reducing dependence on Gulf maritime corridors. Fast-tracking the operational development of alternative corridors, such as the International North-South Transport Corridor (INSTC), can help us build resilient trade linkages.
Further, India can look to upgrade port infrastructure on its eastern coast to increase trade with Southeast Asia and the Far East.
As for exporters facing immediate pressures, the government can consider strategic export support measures to cushion them—especially the small-sized ones—from rising trade disruptions.
The way forward: How can businesses navigate unforeseen disruptions?
For businesses, unpredictability is the new norm.
According to KPMG International's top risks forecasts for 2025, most CEOs consider geopolitics and political uncertainty the top threats to organisational growth. In today's era, building a resilient supply chain ecosystem remains absolutely critical, thus calling for a proactive and multi-layered approach to navigate uncertainties.
One critical step is strategic scenario planning, where companies map out a range of potential outcomes and simulate response to various disruptions.
This allows them to identify vulnerable points across their supply chains and develop integrated strategies that can be deployed as conditions evolve. Equally important is the diversification of logistics routes—both geographically and across modes of transport—to reduce reliance on any single corridor or supplier.
Greater flexibility in sourcing strategies, inventory management and transport planning can help in cushioning against adverse impacts arising out of key route closures.
In addition, businesses must build robust contingency plans. This includes, identifying backup suppliers, securing freight contracts that account for future uncertainties and maintaining critical inventory buffers for essential goods. Such preparedness, especially in high-risk segments of the supply chain, can substantially improve a company's ability to respond quickly and effectively when disruptions occur.
Overall, to strengthen these strategic measures, companies can consider increasing efforts towards digitsation, which can help them substantially improve the visibility and resilience of supply chain processes. For instance, a digitised supply chain, leveraging real-time data, can help companies in better evaluating safety stocks and alternate sourcing strategies.
While recent headlines suggest a potential easing of tensions, the broader global environment remains fragile and unpredictable. In times like these, planning in advance and staying prepared for all possible future scenarios will be key for long-term resilience. The sooner the supply chains adapt, the better they will be positioned to navigate the next disruption—whenever it comes.
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