Hormuz Disruptions Threaten Millions of Small Businesses Worldwide, UN Warns
UNCTAD warns that disruptions in the Strait of Hormuz and soaring oil prices threaten millions of small businesses globally, risking permanent exclusion from supply chains.
The disruptions in the Strait of Hormuz could subject millions of small and medium-sized enterprises (SMEs) worldwide to significant turmoil, the United Nations Conference on Trade and Development (UNCTAD) warned this week. According to the organization, rising energy prices, freight rates, and insurance premiums, coupled with difficulties in securing financing, are burdening smaller companies far more heavily than large corporations.
The Risk to Global Value Chains
The primary concern is not limited to a temporary drop in trading activity. UNCTAD warned of a scenario where SMEs might be forced to cut production, delay investments, or even exit global value chains entirely. In such a case, a future recovery in trade volumes would not necessarily bring all these companies back to their previous operational levels.
SMEs account for about 90% of all businesses globally, roughly 70% of employment, and around 50% of world GDP. According to estimates in the report, this represents some 400 million businesses worldwide, meaning any blow to them could have sweeping consequences for economic activity and employment.
Mounting Costs and Financial Gaps
The gap between smaller companies and large corporations stems, among other things, from their capacity to absorb shocks. Large firms can diversify risks across different suppliers, markets, and funding sources, while SMEs typically have fewer alternatives and less ability to absorb sharp cost increases.
"The risk is not merely a slowdown in global trade, but the possibility that smaller companies will be pushed out of value chains even after overall trade begins to recover," noted Marcelo Risi, UNCTAD spokesperson.
Data presented by the UN highlights the stark difficulties in developing economies. According to the report, meeting import requirements costs small businesses in these nations an average of 19.4% of the value of their direct imports, compared to 8.3% in developed countries. For medium-sized firms, it stands at 17.5% versus 7.8%, and for large enterprises at 14.7% against 7.6%.
Energy Spikes and Oil Prices
The disruptions in the Strait of Hormuz occur against the backdrop of regional fighting and attacks on shipping lanes in the strategic waterway between Iran and Oman. Diverting vessels to alternative routes increases shipping and insurance costs, while high energy prices add further pressure on companies.
This week, Brent crude oil prices surged past the $100 per barrel mark following the renewal of fighting in the region. UNCTAD noted that these shocks are already reflected in higher oil prices, reduced transit volumes, and rising borrowing costs.
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