Off-road map: how the conflict in the Middle East is changing logistics

The crisis in the Middle East may affect global logistics, including the import of various products to the Russian Federation. Blocking air transportation, stopping ship traffic and other disruptions to supply channels increase delivery times, global costs and, as a result, will lead to higher prices for goods such as groceries, jewelry, luxury cars and spare parts, as well as electronics. However, experts believe that businesses will quickly build alternative logistics chains. What product delivery routes companies can use to circumvent the crisis in the Middle East is in the Izvestia article.

As for imports to Russia, according to him, the equipment is delivered by rail and road from China, both in transit through Kazakhstan and other countries of the Eurasian Economic Union (EAEU), and directly through the Far East.

A representative of one of the distributors does not expect a large-scale disruption of supplies. According to him, the main logistics is carried out by road and rail and is not related to routes through Dubai. Cargo transit passes from China through the countries of Central Asia. In the case of air delivery, cargo flights from China to Russia and other countries follow almost directly, he claims.

At the same time, a significant part of Apple's gadgets, including the iPhone, are shipped to Russia from the UAE, one of the retail chains told Izvestia. There is no talk of reducing stocks now — only two days have passed since the start of hostilities in the Persian Gulf. However, in the future, it is possible to reduce the supply of Apple products, which may affect prices, the source believes.

— Logistics is definitely affected: there are practically no flights. How severe the supply tension will be will depend on the duration and intensity of the fighting, as well as on their geography," said a representative of one of the electronics importing companies.According to him, far from the entire flow of parallel imports passed through the UAE: the Chinese direction will continue to operate as before. However, it may be difficult to supply parts of European equipment and other Western brands, including Apple. However, it is still premature to make final predictions — it would be more expedient to wait a few days, the source added.

At the same time, rising energy prices may lead to an increase in the cost of European goods — EU countries have abandoned cheap Russian oil, Sergey Polovnikov, head of the Content-Review project, told Izvestia. But this is unlikely to have an impact on global supplies: the Persian Gulf is a dead end in terms of logistics, he notes. There are unlikely to be problems with the delivery of goods from China, Southeast Asia or India, the expert predicts.

— But the UAE is one of the world's financial centers, through which payments between producers of goods, suppliers and buyers take place. The country's economy is among the top 10 largest economies in the Middle East and North Africa region, which makes its stability particularly important for trade flows. It is unclear how this infrastructure will work if the crisis drags on for a long time," he said.

What will happen to the products and jewelry from the Persian Gulf countries

Unlike importers and electronics manufacturers, participants in other markets are not so optimistic. The current situation may lead to a partial redistribution of flows between global jewelry hubs, said Ksenia Kostina, a resident of the Dubai Diamond Exchange (DDE), a gemologist. At the same time, a global deficit is not expected because of this, the expert believes. According to her, the negative effect will manifest itself in rising costs and short-term volatility in commodity prices.

Russia receives colored precious stones, diamonds, jewelry, watches, various luxury items, as well as niche cosmetics and perfumes through the United Arab Emirates, she recalled. According to her, many shipments of these goods occur between countries through re-export schemes. Dubai is one of the world's largest hubs for the gem trade, she noted. The total diamond turnover of this region is about 180 million carats per year, the expert estimated. Shipments of precious stones and jewelry from the UAE to Russia amount to "tens of millions of dollars annually," she added.

Against the background of increasing tensions around Iran, some of the supplies may shift from direct air routes to combined schemes with additional transit countries, Ksenia Kostina believes. In her opinion, the delivery time will increase, and goods in the high-end segment ("elite") may rise in price by 5-15%. At the same time, serious restrictions on the supply of precious stones and products made from them in the Russian market are not expected in the near future, she noted.

Difficulties may arise not only with exports from the Persian Gulf countries, but also from Iran. From there, Russia receives a significant amount of products — kiwis, tomatoes, cucumbers, various nuts and dried fruits, as well as small batches of dairy products, said Mikhail Lachugin, an independent consultant to retail chain suppliers and founder of the Product Media channel. According to him, in 2022, according to the latest published data from the UN Comtrade database, the volume of exports from the Islamic Republic to Russia amounted to about $691.9 million. Of this amount, fruits and nuts accounted for $186.55 million, vegetables and root vegetables — $82.04 million. These two categories accounted for approximately 39% of all Iranian exports to Russia.

Retailers may face short-term difficulties and increased costs amid changes in logistics chains, the expert admitted. At the same time, supply disruptions from this country are unlikely to lead to "global difficulties" in the Russian market, he believes. According to him, domestic companies have long learned how to work in such force majeure conditions and have the opportunity to choose suppliers both inside and outside the country.

— The supply of vegetables and fruits to Russia, at least from Israel, was significant. These include strawberries, early potatoes, avocados, and others. A large number of dried fruits and nuts were supplied to Russia from Iran. But the market reacts very quickly: where there is a shortage, a new supplier appears. Another thing is that Iran and Israel were relatively close to Russia, so supplies from other more distant countries will certainly cost more due to the higher cost of logistics," Leonid Kholod, ex-Deputy Minister of Agriculture of the Russian Federation, Doctor of Economics, explained to Izvestia.

He noted that these countries mainly supplied seasonal fruits and vegetables, so they would not have much effect on the Russian market and prices in general, and the situation would begin to even out with the introduction of their products.

The current geopolitical situation does not affect the assortment and prices in Russian retail chains, Stanislav Bogdanov, chairman of the ACORT Presidium, told Izvestia. According to him, large retailers have a well-developed and diversified supply chain from different countries, which allows them to quickly redistribute volumes between suppliers if necessary.

"We do not see any prerequisites for supply restrictions or price increases,— he stressed.

How will the military campaign affect the car market

It is likely that the restriction of supplies to Russia will affect certain car models and auto parts, according to a source from Izvestia in the cross-border trade segment.

— Most likely, this will primarily affect the luxury segment. As for spare parts, the waiting time for delivery of individual goods may increase by two to three weeks, but new logistics routes are likely to appear soon," he noted.

Kristina Tanciura, CEO and Managing Partner of SKY Consulting Group, explained that the UAE is mainly used to order and pay for spare parts, while deliveries themselves often pass by the Emirates as a transit hub. While fighting is underway in Iran, this corridor is closed, but they will find an alternative, she believes.

When shipments from the UAE are closed, the cargo flow will be redistributed mainly to Turkey and China, says Anton Shashkov, head of Product range development at Rossko, Russia's largest distributor of auto parts and automotive products. All shipments from the Emirates will be suspended until the end of the conflict, and funds deposited to suppliers in the form of prepayment will be frozen, he believes. At the same time, the expert does not expect serious restrictions on the supply of spare parts, but a change in supply chains may affect prices.

Over the past three years, the UAE has become the main re-export hub for the Russian market. According to the UN, which is referenced by Alexey Ivanov, the owner of the Alliance Trucks commercial vehicle dealership network, shipments from the Emirates to the Russian Federation amounted to $4.43 billion in 2024. These are mainly construction machinery, auto parts, electronics, and parallel imports of Western brands that cannot be bought directly. For this purpose, the Russian business has opened more than 13,5 thousand companies in the UAE.

— The scheme worked through two channels: by sea — containers from the port of Jebel Ali to Novorossiysk and St. Petersburg, and by air — more than 200 weekly flights. Both channels are now effectively suspended: tankers and container ships have not passed through the Strait of Hormuz since March 1, and Dubai Airport has been damaged as a result of strikes. At the same time, the North—South International Transport Corridor passing through Iran was under threat," he explained.

According to him, companies working with spare parts for construction and industrial machinery, as well as electronics, may experience the greatest difficulties — it was these goods that went through the UAE in the first place.

— With a protracted conflict, local supply restrictions on individual items are possible, although for now we are talking about weeks, not months. This may lead to an increase in logistics costs: insurance premiums for goods from the risk zone have already increased, and alternative routes — through Turkey, Kazakhstan or directly from China — are longer and more expensive. This translates into the price of the final product," said Alexey Ivanov.

In his opinion, the conflict in the Middle East has exposed the vulnerability of the concentration of supplies through one hub: those who worked with the UAE without alternatives are now in a difficult position. For a bona fide business, this is a signal to diversify supply chains, he concluded.

Valery Kodachigov, Denis Kuznetsov, Vladimir Gavrilov, Natalia Bashlykova, Pavel Vikhrov worked on the material.