Escalating tensions which started with the US/Israel unprovoked attacks on Iranian soil, has posed significant risk to global transportation, supply chain as well as trade flows. The war has also pushed the price of oil to above US$100, almost 40% higher than just a month ago, which could translate to much higher operational and production costs for food manufacturers in Asia.
For Asian countries that are self-sufficient in food production, they will start to focus more on their domestic consumption, and if this war extends longer than a few months, countries will start to build up food inventories to satisfy domestic consumption first before exporting to other countries.
Indirectly, all the above factors, together with higher freight rates and insurance surcharges, will also lead to upward pressure on prices of consumer goods. Countries like Vietnam, Malaysia and Thailand will also be impacted as the Middle East is also a key export destination for some of their products like coffee, pepper, spices and other processed food and beverage products. Delay in shipments could impact businesses drastically especially for products that are perishables and with a shorter shelf life. Shipments that are already at or near ports in the Middle East might face unloading issues as well as payment delays, and brand owners could consider recalling these shipments and wait for a better stable period to minimise losses.
Countries that depend on international trade could see a considerable portion of their GDP being wiped off if this war prolongs to a similar time-frame as the one in Ukraine.
The Middle East is one of the most important region in the world as it sits on 45% of the world’s oil and gas energy reserves. With production cuts due to the war, this would also mean serious shortage in supply of energy resources which light up our cities and power our modern infrastructures and state-of-the-art production factories. While Venezuela and Canada have large oil reserves, extracting these resources are difficult due to the extra-heavy, high-sulfur crude content which requires complex and costly extraction methods, unlike those found in the Middle East.
Perhaps, this could be a good time for countries and businesses in this region to speed up on their sustainability goals and consider alternative sources of energy. Apart from relying on natural sources like solar, wind energy, and hydropower (water), very near to our own backyard is Malaysia and Indonesia, the world’s largest producers of palm oil – an agricultural commodity which can offer a high-yield, low-carbon renewable energy source in the form of biodiesel for transportation, while the by-products of palm oil can be converted into biogas for electricity and heat generation.
Not to mention, palm oil is a prized commodity due to its exceptional versatility and being an indispensable raw material across most food segments. Palm oil also offers a much higher oil yield per hectare compared to other agricultural commodities like corn, sunflower and soybean. Despite this reality, the palm oil industry faces significant sustainability challenges from deforestation and nature conservation efforts, and is often viewed negatively by the West.
