The Impact of Geopolitical Risks on Supply Chains

Summary

The market reacts to bearish oil expectations and potential supply chain disruptions due to geopolitical tensions in the Middle East, impacting shipping routes like the Suez Canal. This could lead to increased costs and inflation for goods, especially technology products relying on rare materials. A potential conflict may escalate oil prices, affecting global inflation and central bank policies. Cybersecurity could also be affected, with possible growth impacts and increased insurance premiums for supply chain risk.

Takeaways

• 💰 Markets are reacting to bearish oil expectations due to a predicted depression in oil demand, easing supply shock and geopolitical tensions.
• 🛡️ The anticipated supply shock and geopolitical tension impacts are mitigated, suggesting a more stable oil market than expected.
• 🛢 Major shipping through strategic locations like the Suez Canal and Middle East ports continues, particularly affecting Asian countries and industries.
• 🔨 Shipping impacts and inflation on goods, especially rare earth materials and critical minerals for technology, are expected due to rerouting and delays.
• 🛠 Oil and gas supply chains face disruptions, with methanol shipping highlighted as a specific concern.
• 🔥 Potential oil price spikes in response to Middle East conflicts, with significant global inflation implications if oil reaches $100 a barrel.
• 📈 Federal government anticipation of targeted strikes or measured responses in Middle Eastern conflicts could influence global markets and policies.
• 📡 Technology and electronics sectors, especially semiconductors, face output reductions and delays due to major shipping lane disruptions.
• 🚗 Automotive and especially electric vehicle (EV) sectors may experience significant delays due to alternative routing around major canals and ports.
• 💻 Cybersecurity and tech industries could be impacted by kinetic warfare, with a focus on managing cyber infrastructure during conflicts.
• 💻 Insurance rates and supply chain risk underwriting are likely to rise due to increased geopolitical tensions and incidents, emphasizing the importance of risk management.

Q & A

What impact is the decline in oil demand having on the markets?

The market is reacting to bearish oil expectations due to an anticipated decline in oil demand this year. This has eased the previously anticipated supply shock and reduced the impact of geopolitical tensions on oil prices.

How is the shipping industry in Asia, particularly through major ports like Jebel Ali and Jeddah, being affected?

Major shipping routes through ports like Jebel Ali and Jeddah are still active, and countries, especially India, face impacts on shipping costs and inflation, particularly for goods like rare earth materials and critical minerals that are vital for global technology.

What are the broader implications of disruptions in shipping through key routes like the Suez Canal?

Disruptions in shipping through key routes like the Suez Canal could lead to increased shipping costs and delays. This impacts multiple industries including technology, electronics, and automotive, especially in regions dependent on these routes like Asia, the US, and Europe.

What potential global market impacts could arise from changes in oil and gas supply chains?

Any disruption in the oil and gas supply chains, particularly through key shipping points, could lead to a global impact on supply and prices. For instance, methanol shipping disruptions can affect the broader oil and gas industries, leading to increased global inflation and economic instability.

How might ongoing conflicts in the Middle East affect oil prices?

Ongoing conflicts in the Middle East, depending on their scale and nature, could lead to significant spikes in oil prices. For instance, a Gulf War-like engagement could potentially double oil prices, especially if it escalates.

What are the expected impacts on the Federal Reserve's monetary policy due to rising oil prices?

Rising oil prices could significantly impact global inflation rates, putting the Federal Reserve in a difficult position regarding rate cuts. If the conflict escalates, it might prevent any rate cuts for an extended period, possibly throughout 2024.

How are technology and electronics industries, like semiconductors, affected by these market changes?

The technology and electronics industries, particularly semiconductors, are facing impacts due to disruptions in the supply of raw materials caused by major shipping route disturbances. This could lead to a reduction in output ranging from 5 to 10%.

What effects could a kinetic warfare in the Middle East have on the global cybersecurity industry?

Kinetic warfare in the Middle East, particularly involving Israel, could divert focus from managing cyber infrastructure to conflict management, potentially slowing down the growth of the global cyber industry.

Has the seizure of an Israeli-linked ship in the Strait of Hormuz affected insurance rates?

The seizure of an Israeli-linked ship in the Strait of Hormuz has already been factored into current insurance rates. However, a larger scale conflict could further increase insurance premiums and focus on supply chain risk underwriting.

What are the implications for global supply chain management in light of recent geopolitical tensions?

Recent geopolitical tensions have heightened awareness among insurance providers and corporate boards about the risks associated with global supply chains. This has led to an increased focus on supply chain management as a critical component of global risk management strategies.

Outlines

00:00

📉 Market Reactions to Bearish Oil Expectations

The first paragraph discusses the market's response to bearish oil expectations following recent events. The sentiment suggests a potential depression in oil demand for the year, which has eased the anticipated supply shock and the impact of geopolitical tensions. The conversation highlights the wide-ranging effects on various markets and industries, particularly those reliant on shipping through the Suez Canal and Middle Eastern ports. The major focus is on Asian countries, especially India, due to their significant use of these shipping routes for goods such as rare earth materials and critical minerals, which are vital for global technology products. The potential supply chain impacts on the oil and gas industry, specifically methanol shipping, are also mentioned. The discussion emphasizes the importance of watching the ripple effects across oil, rare minerals, and technology sectors, with possible implications on global inflation rates and the challenging position it puts the Federal Reserve in, in terms of rate cuts.

05:03

🚢 Impact of Seized Israeli-linked Ship on Insurance Rates

The second paragraph focuses on the specific effects of the Israeli-linked ship seized in the Strait of Hormuz, particularly on insurance rates. It is noted that the infrastructure has already been adapting to route around the region due to previous incidents involving the Houthi rebels, and their actions have been factored into insurance pricing. However, the conversation suggests that a larger scale conflict could lead to a significant increase in insurance premiums and a heightened focus on supply chain risk underwriting. The parallels drawn with the increase in cyber insurance over the past five years indicate a growing awareness among insurance providers and corporate boards about the importance of supply chain management in global risk management strategies.

Keywords

💡bearish oil expectations

Bearish oil expectations refer to a pessimistic outlook on the oil market, suggesting that demand for oil will decrease. In the context of the video, this sentiment has led to a lessened supply shock and reduced the impact of geopolitical tensions on the market.

💡Suez Canal

The Suez Canal is a crucial waterway connecting the Mediterranean Sea to the Red Sea, facilitating international maritime trade. In the video, disruptions to shipping through the Suez Canal are discussed as having significant impacts on global trade, particularly for Asian countries and those reliant on the canal for shipping goods.

💡rare earth materials

Rare earth materials are a group of 17 chemically similar elements that are crucial in the production of various high-tech products, including electronics and green energy technologies. In the video, these materials are highlighted as being particularly affected by shipping disruptions, which could lead to increased costs and inflation.

💡methanol

Methanol is a chemical compound widely used in the production of various chemicals, fuels, and as an antifreeze agent. In the context of the video, methanol's global shipping routes through certain ports are affected by geopolitical tensions, leading to potential supply chain disruptions in the oil and gas industries.

💡global inflation

Global inflation refers to a general and sustained increase in prices across the economy on a worldwide scale. In the video, the potential for oil prices to double due to conflict in the Middle East is discussed, which could significantly impact global inflation rates and pose challenges for central banks like the Federal Reserve in managing monetary policy.

💡semiconductors

Semiconductors are materials that have electrical conductivity values between those of insulators and conductors, and they are essential components in modern electronics, including computers, smartphones, and other digital devices. In the video, the potential impact on semiconductor manufacturing due to major port shutdowns is discussed, with output reductions and delays in the supply chain being possible consequences.

💡automotive space

The automotive space refers to the industry and market related to the design, development, manufacturing, marketing, and selling of motor vehicles. In the context of the video, disruptions to major shipping routes like the Suez Canal could lead to delays in the automotive industry, particularly affecting electric vehicles (EVs) in Europe.

💡cybersecurity

Cybersecurity refers to the practice of protecting computers, servers, mobile devices, electronic systems, networks, and data from digital attacks, damage, or unauthorized access. In the video, the potential impact on the global cyber industry growth due to a focus on managing cyber infrastructure during conflicts is discussed, with the possibility of increased attention and investment in this area.

💡insurance rates

Insurance rates refer to the cost of insurance policies, which are typically determined by the level of risk associated with the insured item or activity. In the context of the video, the potential for increased insurance premiums and supply chain risk underwriting due to geopolitical tensions and disruptions is discussed, indicating a heightened awareness and cost associated with risk management.

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States, responsible for implementing monetary policy to promote economic stability. In the video, the Fed's potential difficulty in managing interest rates in response to global inflation influenced by geopolitical tensions and oil price fluctuations is discussed.

💡supply chain management

Supply chain management refers to the coordination and management of activities involved in the production and delivery of goods and services, from raw materials to the end consumer. In the video, the importance of supply chain management in risk management is highlighted, with boards and insurance providers becoming increasingly aware of its significance in the context of geopolitical tensions and disruptions.

Highlights

Markets are responding to bearish oil expectations due to a predicted depression in oil demand this year.

The anticipated supply shock and geopolitical tension impact have been eased by the changes in oil demand sentiment.

The situation will impact markets in multiple jurisdictions and industries, particularly affecting shipping through the Suez Canal and Middle East region.

Major ports such as Jebel Ali in Jeddah will experience disruptions, affecting countries like India which rely on these shipping routes.

There will be significant impacts on shipping costs, inflation, and goods such as rare earth materials and critical minerals used in technology products.

Supply chain impacts on oil and gas industries are expected, especially since methanol ships through affected ports.

Asia, particularly India, will feel the impact due to its dependency on the major shipping route.

Oil and gas sectors are vulnerable to price spikes during Middle East conflicts, which could significantly affect global inflation rates.

A Gulf War-like engagement could lead to oil prices doubling, potentially affecting the Federal Reserve's decisions on rate cuts.

Technology and electronics sectors, including semiconductor manufacturing, may face a reduction in raw material output due to port shutdowns.

The automotive space, especially in Europe and concerning EVs, may experience 1 to 2 month delays due to rerouting around major canals and ports.

Cybersecurity could be impacted by a focus on managing cyber infrastructure during conflicts, affecting the global cyber industry growth.

Insurance rates and supply chain risk underwriting may see a significant increase due to larger scale conflicts.

Infrastructure and insurance pricing have already adapted to risks in the region, with premiums increasing for many companies.

Boards and insurance providers are becoming more aware of risks, making supply chain management a key area for global risk management.

Transcripts

What did you see? What's the reaction so far in the

markets of what we saw over the weekend? So there are two things.

The first thing is that the market is responding to the bearish oil

expectations. Right?

So there's been a a sentiment that there are going to be there's going to be a

depression in oil demand this year. And so that's eased the supply shock

that was anticipated and that's also eased the sort of

this geopolitical tension impact. And so that's one of the major market

impacts. But this also is going to start to

impact the markets in multiple jurisdictions and in multiple

industries. So you still have major segments of the

market that are shipping through the Suez Canal and through areas in that

sort of Middle East region. You know, you have Jebel Ali in Jeddah

and a lot of major ports in that region and the major countries that are still

shipping through there are in Asia and in particular India.

And so you're going to see shipping impacts and costs and inflation impacts

on many of the goods that are shipping through India, in particular,

rare earth materials, critical minerals that are used in global technology

products. And then you're also going to see

actually a supply chain impact on oil and gas industries, because a lot of

methanol actually ships through those ports.

And so you're going to see a global impact.

But it's going to be really felt in Asia right now because those are the places

that are still dependent on this major thoroughfare, this major shipping route.

Well, Brandon, you touched on what I've been wondering about, which is where we

should be looking for the ripple effects here, what industries we should be

keeping an eye on. It sounds like oil, definitely, but also

rare minerals and things along those lines.

Yeah, absolutely. So oil and gas during any Middle East

conflict obviously sees an oil price spike.

And so depending on the Israeli response and depending on the extent of this

conflict, which, you know, a lot of our customers that are in the federal

government are saying that they're in anticipating, you know, maybe targeted

strikes may be something measured, just depending on the diplomatic negotiations

over the next 48 hours. But a Gulf War like

engagement here, kinetic warfare, you know, it could lead to oil prices

doubling. And considering that we're sort of we're

moving towards 00 a barrel right now, that could impact our global inflation

rates significantly, which leads the Fed into a very difficult position in terms

of rate cuts. Right.

We might actually not see rate cuts for months and months and months if this

conflict starts to escalate and maybe not at all in 2024 if this escalate

escalates significantly. But you're also going to see some of the

technology and electronics areas start to get impacted, Even some of the areas

like semiconductors, which is an area of high demand right now because of the

boom in AI. And usually in a situation like this

where you have a major port shutdown, you see anywhere between 5 to 10%

reduction in output of raw materials, because

this is a major shipping lane between Asia and the United States or Asia and

Europe, where a lot of the semiconductor manufacturing or finishing of those

goods occurs. The other area that you're going to see

another impact is the same area that we saw when the Houthi rebels were

attacking ships is the automotive space, especially in Europe and especially EVs.

You're going to see potentially 1 to 2 month delays as people continue to route

around this major canal like the Suez Canal or around these major ports.

And so those are going to have downstream impacts.

One of the interesting areas where I think we will also see an impact if

there is kinetic or continued kinetic warfare

between these two countries are in the Middle East generally is in

cybersecurity. You know, Israel's

cyber industry, Israel's technology industry is one of the most robust in

the world. And if everyone sort of focused on a

conflict in managing cyber infrastructure, you actually might see

an impact in the global cyber industry growth.

So Brandon, briefly here at the end, let me go back to what.

He was talking about that Israeli linked ship that was seized in the Strait of

Hormuz. Has that had a specific effect?

And particularly, for example, I think about insurance rates.

Yeah, I think there is there's a lot of infrastructure

that is already moved to routing around that specific region.

And what the Houthies were doing has already been priced into insurance.

But if there is a larger scale conflict, I think insurance rates, I think

insurance premiums and I think even the idea of supply chain risk underwriting

starts to get a big boost. It starts to become a focus, just like

you saw cyber insurance start to spike over the last five years.

I know for us, our cyber insurance has increased and I think most Fortune 500

companies, their cyber insurance has increased significantly.

I think what has happened in Baltimore, what has happened in Panama, what has

happened in, you know, the Houthis situation now, what's happening in this

geopolitical tension. I think insurance providers are starting

to wake up. Boards are starting to wake up.

And supply chain management becomes the frontier for risk management globally.