How the Iran Conflict Is Impacting Global Supply Chain Costs

The Strait of Hormuz: A Chokepoint the World Can't Ignore

We entered 2026 with transportation capacity tightening, pricing was climbing, fuel costs remained relatively contained, inflation — while still above target — was trending in a constructive direction, and GDP was technically growing, even if at an anemic rate. Interest rates were holding steady. The macro story, while not optimal, was manageable.

Then the conflict with Iran, however, has added a new variable to the equation, and that variable is fuel.

The Strait of Hormuz is not a supply chain abstraction — it is one of the most consequential physical chokepoints related to fossil fuel energy. Approximately 20% of the world's oil supply flows through this narrow passage between Iran and Oman. When access to that corridor becomes restricted, the effects are not theoretical. They are immediate, measurable, and they cascade across every mode of transportation.

Fuel Costs Pass Through. Every Time.

Here is the dynamic that supply chain leaders need to internalize: fuel cost increases almost always pass through to the shipper and often on to the consumer. Unlike tariff costs, which can be absorbed, potentially refunded , mitigated using various inventory strategies, fuel surcharges are a key cost component of all modes of transportation. They move with the market. There is no mechanism to hold them at the border.

The February data reflects early-stage pressure. Diesel averaged $3.72 per gallon — up 5.6% from January and the only fuel type showing year-over-year increases. Jet fuel is similarly exposed. What we are watching now is whether the conflict's duration and the effectiveness of mitigation strategies — including releases from the Strategic Petroleum Reserve — are sufficient to prevent a deeper, sustained escalation in costs.

That answer is not yet clear. Fuel is typically an “uncontrolled” surcharge - no one has a crystal ball to know exactly how it will fluctuate and most contracts are written to make fuel a relative cost based on an index value (the DOE is an example).

Surface and Air Freight Are Both Exposed

This is not a trucking story or an ocean story. It is both, simultaneously, and air freight is also in the equation.

On the surface side, Transportation Prices hit 76.7 on the LMI index in February — the highest reading since March 2022 — with late-month readings pushing past 80.0. Capacity is contracting at the fastest rate since the height of the COVID shipping boom in November 2021. Carriers are in a strong position of pricing power, and fuel cost volatility will only reinforce that dynamic.

On the ocean side, Maersk has already announced diversions away from Suez Canal routes in response to escalating hostilities between the U.S., Israel, and Iran. Rerouting around the Horn of Africa can add weeks to transit times, creating ripple effects in inventory planning, lead times, and port congestion globally.

Air freight, already facing fuel pressure, is now exposed to the same Hormuz-driven dynamics that are affecting jet fuel pricing.

Demand Could Soften — But Prices May Not Follow

Here is the uncomfortable tension embedded in the current environment: a material increase in fuel costs may suppress demand or at least shift near-term spending habits. When consumers feel pressure at the gas pump, discretionary spending contracts. When manufacturers and retailers face higher total landed costs, they adjust order patterns.

But reduced demand does not automatically translate to lower transportation prices — not when capacity is simultaneously contracting and carriers need to recover their own cost increases. The February transportation pricing trajectory already reflected this compression. If the conflict extends, we may see demand softening even as transportation costs stay elevated, a combination that puts significant pressure on shipper margins.

What Supply Chain Leaders Should Be Monitoring

The duration of the conflict and the pace of normalization of oil flows through the Strait of Hormuz are the most critical variables to track right now. Mitigation strategies are in place, but their effectiveness is limited. Petroleum reserve releases address short-term supply gaps — they do not resolve the underlying geopolitical dynamic.

At the same time, the broader manufacturing recovery that was gaining momentum — evidenced by the ISM PMI breaking a 26-month contraction streak in January — could be interrupted if fuel cost volatility suppresses industrial activity or shifts capital allocation.

Supply chains were already navigating tariff uncertainty, capacity tightening, and margin compression heading into Q2. The Iran conflict adds a variable that is genuinely difficult to model until its duration becomes clearer. What we know with confidence: the cost effects are real, they are already showing up in the data, and they are not finished moving.