Fears of price hikes as Iran conflict drives up shipping costs

Maltese businesses are bracing for a wave of inflation and supply chain shortages triggered by the escalating conflict in the Middle East as energy supplies and container shipments are being disrupted.

The closure of the Strait of Hormuz and the disrupted shipping routes around the Suez Canal and the Red Sea are threatening the importation of medicines, semiconductors and food staples, the Malta Chamber and the Malta Chamber of SMEs have warned in comments to Times of Malta. 

Malta Chamber head of policy Kevin Mizzi said shipping costs are skyrocketing, in some cases reaching three times their original price. These hikes are driven by rising crude prices, bunker surcharges, and increased emissions costs (ETS) associated with the much longer route around Africa.

Malta's low-volume problem

Crucially, Mizzi warned that since Malta is a low-volume destination, its shipments may be de-prioritised at major hubs as congestion builds. “Shipping consignments with lower volumes are unlikely to be prioritised over larger ones,” he said, adding that even if the active military phase is short - something Mizzi cautioned could not be taken at face value - the logistical repercussions would likely persist for months.

The crisis is the result of a massive joint military offensive launched by the United States and Israel last week. The conflict escalated instantly following high-precision strikes on Tehran that killed Iran’s Supreme Leader, Ali Khamenei, along with several top military officials. In retaliation, Iran targeted US assets and civilian infrastructure across the Gulf, including Bahrain, Kuwait, Qatar and the UAE.

Crucially for global trade, Iran declared the Strait of Hormuz closed, threatening to attack any vessel attempting to pass. While US naval forces continue to challenge this blockade, commercial operators have no choice but to divert vessels around the southern tip of Africa, a move that removes significant shipping capacity from the global market and isolates Mediterranean hubs like Malta.

“Major shipping lines are forced to detour around the Cape of Good Hope, adding days to transit times,” Mizzi said. “This delay threatens the importation of critical goods, including paper, semi-conductors, and most importantly medi­cines, pharmaceuticals, and active pharmaceutical ingredients originating from Asia, together with other supplies such as rice and sugar. Carriers will also struggle to maintain their own fuelling supplies.”

The Malta Chamber of SMEs echoed these concerns, noting that while businesses have absorbed some initial price increases in recent weeks, the “powerful impact” of shortages and further price hikes is inevitable as ships begin to refuse entry into high-risk zones.

Healthcare headaches 

The threat could be particularly acute for the healthcare sector. Mario Debono, founder of the Malta Union of Pharmacy Owners, explained that most generic medicines and active pharmaceutical ingredients (APIs) originate from India, China, and Vietnam. That means Malta could be facing a shortage of imported finished medicines, and Maltese companies that manufacture medicines on the island could also be impacted by a shortage of ingredients and packaging materials like plastic and aluminium.

“We will be even more impacted if the Suez Canal is formally closed. We already have notices from major shipping companies saying they might suspend or reroute,” Debono said. He added that while the impact may not be immediate, a prolonged conflict could lead to serious shortages and price hikes for refrigerated medicines within three to four months.

While the Suez Canal has not been formally closed by the Egyptian government, it is effectively non-operational for major global shipping. The escalating conflict has forced nearly all major carriers to abandon the route, with international reports this week indicating that the Suez Canal activity has dropped by more than 53 per cent in one day.

“The situation remains highly fluid, and while a definitive quantitative impact is premature, the sentiment among Maltese businesses is cautious,” Mizzi said. “The ultimate economic fallout will depend heavily on the duration of hostilities and the extent of closures along key East-West transit routes.”

Beyond sea freight, the conflict is also paralysing Middle Eastern aviation hubs like Dubai. The Malta Chamber said it anticipates a decline in inbound tourism and business travel from Asian markets due to airspace restrictions, while high-value, time-sensitive air freight is already facing significant delays.