Escalation disrupts region's logistics, energy sector: As Israel and Iran exchange airstrikes, concerns are rapidly mounting over the potential impact of a wider regional conflict. We take a deep dive into the ongoing and potential consequences for the region’s crucial shipping routes, energy flows, and aviation networks if the hostilities persist or escalate.

REFRESHER- The most dangerous confrontation between Israel and Iran in years: After months of heightened tensions and reports of an imminent Israeli attack, Israel struck Iran’s nuclear sites on Friday morning, along with the targeted assassinations of senior military figures and nuclear scientists. The two have since exchanged missiles and airstrikes over the weekend and show little signs of looking for an offramp, with Iran vowing revenge and Israel threatening even more devastating strikes and hinting at regime change.

SHIPPING DESTABILIZED

Are the regional waterways at risk? The Israel-Iran conflict has potentially put crucial shipping routes — the straits of Hormuz and Bab-el-Mandeb — at risk of disruption, Bloomberg reported last week, citing shippers, brokers, and maritime analysts. “For now, this is a risk premium — owners will hold back from putting ships into the Gulf on a business-as-usual basis,” Oil Brokerage Ltd.’s global head of shipping research Anoop Singh told Bloomberg.

First up, the Suez Canal: While the Suez Canal has not felt the disruptions so far, Banking expert Hany Abou El Fotouh cautioned that “disruptions in regional maritime security or significant rises in ins. costs could temporarily prompt shipping lines to reconsider their routes.”

The disruptions could derail efforts to bring back global shipping lines to the waterway. Transit receipts from the Suez Canal dropped 62.3% y-o-y to USD 1.8 bn in 1H FY 2024-2025 on the back of Red Sea disruptions that pushed ships to reroute away from the canal. Tonnage through the canal was down some 70% y-o-y to 117.5 mn tons in 2Q of this year — despite the Suez Canal Authority offering a 15% discount in containership fees.

Ship owners have been wary of the region. Greece and the UK advised shipping firms to avoid sailing through the Southern Red Sea and the Gulf of Aden as well as log any and all movements through the Hormuz Strait, according to documents seen by Reuters. “A large-scale return of container ships to the Red Sea seems less likely, a situation which continues to have a major impact on ocean container shipping rates 18 months after” the Houthis began their attacks on vessels transiting the region, Xeneta chief shipping analyst Peter Sand told CNBC on Friday.

Oil tankers steer clear of Gulf: A dwindling number of oil tanker owners are willing to accept charters into the Arabian Gulf, with Frontline — the world’s largest listed oil tanker player — rejecting new contracts to sail the Strait of Hormuz amid escalating attacks between Iran and Israel, CEO Lars Barstad told the Financial Times last week. “Trade is going to become more inefficient and, of course, security has a price,” Barstad told the Financial Times.

Iran is mulling the closing of the Strait of Hormuz, Iran Intl reports, quoting a member of the Parliament’s National Security Commission General Esmaeil Kowsari as saying. The strait — nestled between Oman and Iran — links the Persian Gulf to the Arabian Sea and operates as a key shipping channel for Iran, Iraq, Kuwait, KSA, and the UAE, Reuters reports. It is responsible for the passage of around a fifth of the world’s total oil consumption — amounting to nearly 20 mn bpd of oil, condensate, and fuel.

Carriers will push for surcharges: Several shipping carriers are expected to push for a “security surcharge” on ocean freight container shipping rates in the “coming days,” Sand added amid “inevitable disruption and port congestion, as well as the potential for higher oil prices.”

Hapag-Lloyd has already rolled out increases..: Shipping giant Hapag-Lloyd has increased its general rates from the Indian Subcontinent and the Middle East to North America by USD 500 per container, according to a statement released on Friday. The move will impact shipments heading to the US and Canada from the UAE, Qatar, Bahrain, Oman, Kuwait, Iraq, KSA, and Jordan.

…and Maersk was quick to follow: Dutch Shipping giant Moller-Maersk also revised its peak season surcharge (PSS) for cargo traveling between the region and North America — rising to USD 3.5k per dry container and USD 3k per ref container, according to a statement released on Friday. The PSS will impact shipments headed from UAE, Yemen, Qatar, Bahrain, Oman, Kuwait, Iraq, KSA, and Jordan to the US and Canada.

ENERGY TROUBLES

Israeli gas suppliers formally invoked force majeure and suspended exports, including those to Jordan and Egypt — which reached around 800 mn cubic feet per day (mcf/d) last week — after Tel Aviv shuttered the offshore field as well as the Karish field amid Iranian retaliation. The Israeli Energy Ministry declared a state of emergency in the gas sector following the recent attacks, leaving no clear timeline for when pumping will resume, a government official told Asharq Business.

The sudden halt in gas flows from Israel’s Leviathan field is set to deepen energy crunch in Egypt and Jordan, forcing emergency reallocations, and factory shutdowns as the country scrambles to stabilize power generation ahead of peak summer demand. The two countries would need to generate another 10 to 12 LNG cargoes per month between them to fully replace Israel's haulS&P Global First Take LNG Analyst Laurent Ruseckas told Bloomberg on Friday.

Egypt takes drastic measures: Egypt has halted gas flows to energy intensive industries, such as fertilizers, suspending about 900 mn cf/d of natural gas to energy-intensive industries and cutting flows to steel producers to free up supply for the grid. The country is also planning to up its imports of mazut shipments to compensate for the halted flow and keep the country’s grid up as more regasification units arrive and become fully operational to process LNG imports, a senior government source told EnterpriseAM.

To guard against geopolitical tensions, Egypt is also raising the targeted summer spot LNG shipments to around 80 shipments to secure needs — up from the previously targeted 60 shipments, our source said. This is in addition to recently secured agreements for 80–100 LNG shipments annually, with the option to ramp up to 120 cargoes per year if needed at a then USD 0.70 premium over international prices before the recent uptick in global oil energy prices.

ON THE AVIATION FRONT

Regional unrest disrupts flight schedules in Egypt, UAE, Bahrain: EgyptAir paused flights to Lebanon, Jordan, and Iraq yesterday, according to a statement. Flights going from Egypt to Beirut, Amman, Baghdad, and Erbil airports are canceled until further notice. Abu Dhabi-based budget carrier Wizz Air canceled all flights to Amman until 20 June, according to a statement. The UAE’s budget airline flydubai has also canceled flights to Jordan, Lebanon, Syria, Iran, and Iraq — with plans to relaunch by 20 June. Bahrain’s Gulf Air followed suit, slashing scheduled flights to Jordan, Iraq, and Azerbaijan, BNA reports. The airline is scheduled to relaunch all flights by 21 June.

More air traffic disruptions in Jordan, Syria, Iran: Commercial flights in Iran, Israel, Syria, and Jordan were halted on Friday following Israel’s strikes on Iran, CNN reported on Friday, citing flight-tracking site Flightradar24. Three major airports — Tehran's Mehrabad, Tel Aviv's Ben Gurion, and Amman's Queen Alia International — all ceased operations on Friday. Tehran suspended all air traffic following the strikes.

Iraq’s air traffic felt the impact too: Iraq has suspended air traffic at all airports until further notice due to a recent flare up in regional tensions, according to a Friday statement by the Transport Ministry. The move was followed by a reopening of southern Iraqi airspace for flights departing from or arriving at Basra International Airport during daylight hours, a statement noted. Qatar Airways temporarily canceled flights headed to Iraqi airports in Baghdad, Erbil, Sulaymaniyah, Najaf, and Basra last Friday, according to a statement.

DATA POINT- Some 1.8k flights heading to or departing from Europe were impacted, including 650 canceled flights, Reuters reported on Friday.

A silver lining? Saudi Arabia and Egypt became the primary southern corridors for diverted air traffic, Reuters reported. As the flight advisory organization Safe Airspace noted, “Traffic is now diverting either south via Egypt and Saudi Arabia, or north via Turkey, Azerbaijan, and Turkmenistan.”

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