With the Iran war continuing to escalate, the world is grappling with the closure of the busy sea traffic lane, the Strait of Hormuz.

You may feel that that is only a disruption that affects oil supply and its prices.

Many people think this is a straightforward relationship. But while oil supply and its prices are significantly impacted by the disruption, the impacts are not limited to that.

Let’s elaborate on the consequences.

First, the immediate impact is a shortage of oil supply, which triggers panic among people.

On one hand, there is a shortage of supply and, on the other, people try to stock more (known as panic buying) during a crisis time.

That creates double impacts on the supply chain – a shortage in supply and a surge in demand. Often, the supply chain cannot handle both sides’ tensions in this complex global environment. Hence, immediate impacts become visible in the form of rising prices.

The consequences of a disruption don’t end there. They flow through to many other branches of the supply chains.

Consider the same example of disruption in oil supply and its consequences in the longer term.

Due to oil shortages and higher prices, the ability of transportation and its costs will be affected.

The impacts will be immediate. Maintaining continuity of transportation services will be impacted if disruptions persist for an extended period.

We know that Australian-grown fresh produce is transported from one state to another to meet the demand. It travels long distances before reaching customers.

First, the transportation cost will increase due to higher oil prices, and that will likely be passed on to customers.

Second, if the operability of transportation services is reduced by the oil shortage, the industry won’t be able to transport enough fresh produce required for consumers.

Consequently, this may create havoc in the supply chain of fresh produce and can affect our food plates on the dining table.

The shortage in the oil supply chain also negatively impacts the ability to maintain farming activities and keep many agricultural machineries operational.

If the disruption has extreme impacts and lasts longer, farmers and businesses will end up having wastage of fresh produce or be unable to produce, which will impact their cashflows and abilities to run their businesses.

This is just an example of the ripple effects of the disruption in oil supply on our fresh produce supply chain in Australia.

Now, think of the Australian and global supply chains of thousands of products, which travel many thousands of kilometres before reaching customers.

The supply chain of those thousands of products will have direct and indirect impacts in the short and long terms if the transportation options, such as trucks, ships, rails, and planes, are affected by a disruption.

These disruptions can affect end consumers in the form of increased prices and/or unavailability of products.   

The disruption in the oil supply impacts our supply chains of food, clothing, and other necessary goods.

Disruptions such as natural disasters, breakdowns, pandemics, geopolitical tensions and wars could potentially impact some or all of the supply chain activities.

The impacts of these disruptions are not merely local.

The impacts propagate through the different stages of the supply chain including supply, manufacturing, distribution, transportation, and logistics. They then end up affecting their ability to continue the operations.

Sanjoy Paul is Associate Professor, Operations and Supply Chain Management at University of Technology Sydney

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