Geopolitics can be a distant concept but the business-to-business sector has to make disrupted supply chains work

Goods on the retail shelves have prices attached, and it’s the prices of these goods which determine metrics such as inflation and cost of living.

Behind a price tag sits a complex web of supply chains, commodity costs, insurance, energy volatility and logistics challenges. And that’s before we factor-in disruptive events such as the Persian Gulf conflict, the Strait of Hormuz and the ongoing hostilities in the Middle East.

Australia sits at the end of many supply chains. We import a lot of items and commodities to make industrial inputs for other businesses, as well as to produce finished goods for retail. 

Our economy can sometimes look like the endpoint of the butterfly theory: small problems emerge upstream, in another part of the world, and a month later there’s a blow-out in prices of a good or service that we rarely even think about.

The Straight of Hormuz Shock

Australia is currently being buffeted by more than a butterfly beating its wings. Reuters has reported that the Strait of Hormuz disruption effectively shut a route that carries around one-fifth of the world’s daily oil and LNG supply, and that Asia is the most vulnerable region to the disruption. The World Bank projects energy prices to rise 24% in 2026 and described the conflict as the largest oil supply shock on record. That obviously affects the supply chains of all Australian businesses, in some way.

The good news is that if a peace deal can be signed between the warring parties in the Gulf, we can slowly return to normal (and preferably without any more people being killed).

However, the bad news is that the Australian business community has been absorbing the price shocks of the Gulf conflict now for more than two months, and handing on lower price rises than the input costs warrant. But that situation will not hold given the size of input cost rises that are now emerging.

From Hiccup To Sustained Event

What started as a hiccup is now a sustained event and is showing itself in steadily increasing costs. At our business we have more than 125 inputs into our grease and lubricant products, and some of the items have projected price rises of between 40% and 60% over the rest of 2026.

Other items we require for our manufacturing business, are experiencing scarcity and sourcing problems. In some cases, suppliers cannot give us the volumes we try to order; other suppliers are saying no to too much forward buying because their own cost-bases are changing week to week and they don’t want to lock-in prices that are uneconomic to deliver on.

This is the cat’s cradle of supply chains, procurement and capacity planning that businesses are having to juggle as conflict in the Middle East exerts a hold on our economy.

The Way Ahead

Australian businesses that weather this ongoing event, I believe, will be the ones that return to human qualities. The survivors and thrivers will be the ones that embrace resilience, reliability and customer trust. As material pressures and geopolitical shocks work their effects from a distance, successful business owners and managers are focusing on operations, supply continuity, pricing discipline and customer confidence.

Volatility of the type that none of us can influence, is teaching Australian manufacturers about reliability. There may be global disruption, however in our supply chains there are humans making real business decisions and customer commitments. As prices rise and scarcity emerges, frank and honest communications with our supply partners become crucial. We all have capacity planning that we’ve committed capital and employees to, but we can’t all pass on emergency-level price increases. That kind of ‘margin protection’ panic, right now, would wound entire supply chains and take serious chunks out of industries such as manufacturing and construction.

This is why local manufacturing capability matters in unstable markets. We all exist in an ecosystem of suppliers and buyers and we rely on one another to keep the value chain thriving. Resilience will not come from a foreign government or a successful military strike; resilience in Australian industry is the result of nurturing relationships, honest communications and retaining the agility to quickly switch production, to change supplier and to make a product that accounts for what inputs are available. We can do that if we have local industry, but to make it all work we need trust. 

The Final Piece

This final piece – trust – is the ultimate human quality because to earn it you have to give it, and really that’s what markets and trade run on. Trust is the differentiator in volatile markets. In uncertain conditions, customers remember who communicated early, who explained clearly and delivered consistently. 

The external ideas of inflation, trade uncertainty and supply fragility are not theoretical concepts – they are the indicators that push industry participants into supply chain communications, commitments and negotiations. And none of these factors can work without trust: it’s the human quality that makes the economy tick.