Hormuz Crisis Threatens Small Businesses

Disruptions to shipping in the Strait of Hormuz caused by the war between the US and Iran could push small and medium-sized enterprises out of global supply chains, the United Nations Conference on Trade and Development (UNCTAD) warned on Tuesday.

Rising energy prices, shipping rates and insurance premiums, combined with limited access to financing, are hitting smaller firms harder than large corporations, which can diversify their suppliers, markets and sources of financing. Small and medium-sized enterprises (SMEs), however, account for approximately 90% of all businesses, provide 70% of employment and generate half of global GDP.

Following a lull in August, fighting in the Persian Gulf has resumed, with the US and Iran once again exchanging fire. Brent crude rose by more than 2% on Tuesday to above $99 a barrel, its highest level since July. The economic consequences of the conflict could be exacerbated by Houthi attacks in southwestern Saudi Arabia, which threaten energy supplies beyond the blocked Strait of Hormuz.

UNCTAD therefore warned of a “crowding-out effect” on small and medium-sized enterprises. Smaller firms could be forced to cut production, postpone investment or drop out of global value chains entirely, even if global trade as a whole begins to recover.

(Reuters, max)