Right now, the world’s dependence on the Strait of Hormuz has emerged as a global risk that could result in structural changes to some sectors.
Even if normal shipping activity resumes in the Strait, some industries are facing a multi-month recovery that could even stretch into years.
The So What
“Given the lengthy disruption to shipping routes, organizations now need to factor the Hormuz chokepoint and recovery periods into their longer-term strategic planning,” says Aparna Bharadwaj, a BCG managing director and senior partner.
“Firms will need to consider the recovery timeline on a sector-by-sector basis, as well as being aware that some industries will experience a reset that becomes the new industry norm.”
The recovery of each sector will have a distinct timeline which depends on three core requirements.
- Infrastructure will need to be repaired, inspected, and restarted.
- Transport corridors will need to be declared safe for transit, stranded vessels released, and shipping schedules rebuilt.
- Reconstruction financing will need to be secured and the skilled labor essential for repairs will need to be mobilized.
It will also be vital to restore the confidence of investors in the Middle East by stabilizing energy and financial markets. The retention of foreign workers will also be critical given their important contribution to economies in the region.
“Gulf nations are also focused on the ‘day after’, revisiting their strategies to build a sustainable and resilient competitive advantage. Effectively communicating these updates will be essential to strengthening trust among domestic stakeholders and reassuring investors of continued stability, even in the face of unexpected shocks,” says Chafic Mourad, a BCG managing director and partner based in the Middle East.
It’s important to recognize the time it takes to resume and scale up operations could be lengthy, even if normal shipping activity is resumed.
The following time scales illustrate a hypothetical best-case recovery scenario, beginning the day after the Strait of Hormuz fully reopens to all vessels. They assume that a ceasefire or peace agreement holds, reconstruction of damaged infrastructure gets underway, and global economic uncertainty begins to ease.
- Liquified natural gas will have an extended path to recovery, with infrastructure requiring considerable repair and recommissioning.
- Oil production has also been hit.It will take an estimated 5 to 8 months to get production back to within around 90% of prior levels in the Middle East.
- Chemicals are likely to see a relatively quick recovery once feedstocks are replenished and refineries restart, although this is likely to be several months rather than weeks.
- Damage at aluminum smelters will most likely lead to a relatively slow recovery. Undamaged smelters which have gone cold will take 8-12 months to fully restart, while missile-hit facilities will take over a year to repair and heat-up.
- Confidence in shipping through the Strait of Hormuz may take 6 months or more to normalize, while mine clearing in the Strait alone could take upwards of 2 months. It may also take 6-10 weeks to release stranded vessels.
- Aviation is likely to have the fastest operational recovery time, even if higher fuel prices and weaker consumer confidence persist.
“With disruption to shipping having lasted longer than first expected, the recovery period will also last longer,” says Kasey Maggard, executive director of BCG’s Center for Geopolitics.
Energy and shipping are two sectors which may be facing more permanent shifts.
- Energy: The conflict has reinforced the importance of energy security for countries. The conflict could reshape the transition of the energy mix, accelerating an already fast-moving shift to electrification. This will likely also include rewiring of energy trade flows and infrastructure to build resilience.
- Shipping: The industry could be facing a more permanent repricing of trade routes that pass through critical choke points, as well as persistently higher maritime insurance risk premiums. Some governments may also take on a larger role in securing key sea lanes. At the same time, analysts are discussing whether alternative routes will transition from occasional contingencies to regular features of trade flowing to, from, and through the region.
Now What
Leaders need to plan for more than the closure period; they also need to factor the entire repair and recovery cycle for their sectors. This could mean contingency planning for several months even years.
- In the short term, companies should establish control through a diagnosis of highest-risk business areas. Leaders should map the direct and indirect impacts of the Hormuz chokepoint across their balance sheet and P&L—from the cost of goods and borrowing costs if credit tightens, to the effect of inflation on consumer demand, among others. Scenarios are an important tool to understand the range of impact on the business.
- Companies should then aim to stabilize operations amid potential future disruption, for example by building buffers or finding alternative sources of critical inputs. Business continuity plans should consider the recovery timeline rather than the exact timing of any ceasefire and the re-opening of the Strait of Hormuz.
- Leaders should also consider the longer-term structural shifts in their industry — whether business-as-usual will return or new norms will emerge. This means pressure-testing their resilience advantage by evaluating whether supply chains should be reconfigured through diversification and re-localization of vulnerable inputs. It also means building the geopolitical muscle needed to identify and proactively manage risks from future disruptions—developing scenario-based playbooks before the next crisis strikes.
