Plastic bag shortages, WFH, pricier wine: The Iran conflict is rippling through the economy

[SINGAPORE] As the conflict in the Middle East heads towards the one-month mark, its effects have extended to various supply chains and global trade, beyond the immediate impact of energy prices.

Major carriers have rerouted their ships to avoid the Persian Gulf; some have halted cargo bookings or even suspended port operations. The Strait of Hormuz’s closure, meanwhile, has sealed off a route that normally carries as much as a fifth of global oil and gas exports.

Various travel routes have been affected, and transport costs have begun to skyrocket globally.

These impacts are now trickling into other areas. From wheat and wine to hotels and plastic bags, The Business Times takes a look at how the war has affected different parts of the economy.

Discounted prices in some luxury hotels

Luxury hoteliers in Thailand are cutting room rates by up to 70 per cent. This applies to some five-star properties recording typical nightly rates of nearly US$1,000.

This is part of efforts to lure more local residents, as various travel disruptions due to the Iran war have tapered off “traditionally reliable streams of foreign tourists”, based on a Bloomberg report.

Data indicated that arrivals from Europe and the Middle East to Thailand have already shrunk 16 per cent since the conflict began.

Some high-end properties in Dubai have also cut rates by 12 to 15 per cent, and other hoteliers are promoting staycation packages for residents, as the war affects international arrival numbers.

Wheat production hit by fertiliser supply woes

Various farmers are planting less wheat amid the Iran war, due to concerns over a declining supply of fertiliser.

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About one-third of global seaborne fertiliser trade passes through the Strait of Hormuz, based on UN data.

A Bloomberg report said wheat is a “nitrogen-intensive crop”, and the use of fertiliser is among the key factors for its yields. This means delays in the reopening of the Strait of Hormuz will hurt wheat production, as fertiliser becomes pricier and harder to obtain.

Prices of bellwether nitrogen fertiliser surged to US$700 a tonne, from US$400 to US$500 before the war broke out.

In contrast, upsides are expected for other types of grain, such as lentils, barley and canola. This is because pulses like lentils do not require as much fertiliser, and canola can fetch better prices than wheat now.

Countries such as Australia, which harvest their crops at the end of the year, can expect current wartime disruptions to affect supply globally in 2027, noted Bloomberg.

Wine production and sales hit

The effects of rising oil and diesel prices have rippled over to the sale and production of the favourite drink of many – wine.

Equipment used in wineries globally – such as tractors and harvesters – run on fuel sources which have doubled in price since the war broke out.

The rerouting of air and sea routes due to the war will also cause delays in wine deliveries – transport prices rise when longer routes are taken. The uptick in crude oil prices will further affect the cost of global transportation of wines, said experts.

Other sources indicated that costs of production for wine glass bottles are getting more expensive.

These price pressures are affecting growers and winemakers at the same time as US President Donald Trump’s tariffs, a Bloomberg report showed.

Plastic bag shortages

The supply of naphtha, which is used to produce most plastics, has been disrupted. Some naphtha imports pass through the Strait of Hormuz, where a blockade has pushed prices up.

International naphtha prices jumped from US$56.90 per barrel in early January to US$129.70 last week, a 127.9 per cent surge, according to The Korea Herald citing data from the Korea National Oil.

Some markets are experiencing disruptions in production or supply of plastic bags, such as South Korea and Taiwan.

That is causing price hikes in plastic bags, containers and other materials used in packaging, based on a Taipei Times report.

Over in South Korea, consumers are rushing to stockpile plastic bags, with stores restricting the number of sales per person. There were complaints of empty shelves.

More WFH mandates in some South-east Asian countries

As commuting to work becomes costlier amid higher gas prices, certain Asean nations have made more WFH arrangements.

For example, in Indonesia, civil servants are set to have a minimum of one WFH day a week. Public services, however, must continue without disruption, said the state.

The local government has recommended similar rules for the private sector, in order to lessen energy consumption.

More WFH arrangements in Malaysia’s public sector can be expected after Hari Raya as well. In the Philippines, government workers have been working four days a week since Mar 9 to cut back on fuel usage.

Vietnam’s government has also encouraged people to WFH, and decrease their consumption of fuel by using public transport.

Meanwhile, Thailand has also ordered its bureaucrats to use the stairs and WFH in its energy saving drive, on top of suspending overseas trips.

At present, nearly 68 per cent of Thailand’s energy needs are met from natural gas, with more than half of its liquefied natural gas sourced from domestic production in the Gulf of Thailand, according to the nation’s Energy Regulatory Commission.

Since March, the country has also halted energy exports to all countries other than Laos and Myanmar, noted a Reuters report.

Semiconductor chip supply blocks

The supply of key microchip materials essential to semiconductor chips is facing a significant block amid the Iran war.

A Morningstar report on Monday indicated that Qatar accounts for more than one-third of the world’s helium supply, which is essential to manage heat in semiconductor production, and for lithography utilised in printing chip circuitry. Such production in Qatar has since ceased due to the war, with little to no other viable alternatives at present.

The commodity helps chipmakers cool wafers – silicon discs which are printed with electronic circuits. It is also a good thermal conductor, which speeds up the process, an AFP report on Mar 21 said.

Stunted helium supply complicates chip production in global supply chains, especially in certain countries with significant demand for semiconductor chips.

Some of the world’s largest memory chipmakers, such as Samsung Electronics and SK Hynix, are exceptionally vulnerable to supply shortages, as it imports around 65 per cent of its helium from Qatar, according to Fitch Ratings.

Around two-thirds of global bromine production – another key material in the semiconductor manufacturing process – is helmed by Israel and Jordan.

The Middle East region also accounts for around 8 per cent of global aluminium capacity, and depends on the Strait of Hormuz for aluminium imports and metal exports.

David Oxley, Capital Economics’ chief climate and commodities economist, said chipmakers should be “resilient” if shipping disruptions were to recover in the coming weeks.

“But prolonged disruption to shipping through the Strait of Hormuz, and/or lasting damage to gas production facilities in Qatar, would be a bigger issue,” he noted.

Pivot towards data centres in South-east Asia 

Data centre operations in the Middle East have been disrupted by the war. In particular, two data centres in the United Arab Emirates and one in Bahrain were struck by drones or missiles.

This, however, could be an opportunity for the market in South-east Asia, as an “alternative destination for digital infrastructure development”, reported The Business Times previously.

Market observers noted that Malaysia has substantial land availability and tax incentives. Its neighbour, Singapore, offers established hyperscale capacity, though the Republic still faces constraints from high costs, limited land and tight energy resources.

To Sarah Jane Mahmud, senior industry analyst at Bloomberg Intelligence, the Johor-Singapore Special Economic Zone is already attracting “substantial capital and a growing pipeline of data centre projects”, which posture it as a preferred node in global cloud infrastructure planning.