Valdai Club

The 12-day war between Israel and Iran, due to its short duration and limited scale, caused increased market volatility, and a number of transport companies suffered losses. At the same time, the war did not have a serious impact on the dynamics of logistics projects in the world, Grigory Mikhailov writes.

Three months have passed since the end of the twelve-day war between Israel and Iran. The conflict in the Middle East has touched on a number of sore points in global logistics and caused a surge of interest in the prospects for its development.

The Strait of Hormuz and alternatives

In the context of global logistics, the fate of the Strait of Hormuz attracted the most attention during the military conflict. About 20% of the world’s oil and more than 30% of its liquefied gas pass through it. China, India, Japan and South Korea buy 2/3 of the oil transported through the strait.

The Iranian authorities have repeatedly stated that they may close the strait in the event of a military threat. In June 2025, this warning was repeated by Esmaeil Kousari, the head of the Iranian parliament’s committee on national security and foreign policy.

According to JPMorgan analysts, if a blockade were imposed, oil prices could soar to $130 per barrel, while the Iranian Foreign Ministry’s estimates were more radical – up to $300.

The blockade could affect the interests of major players. Iran understands this and has been using this topic as a lever to put pressure on its opponents since at least 1980. At the same time, Iran did not implement the threat during the recent war and is unlikely to do so later.

An Iranian attempt at a blockade would be akin for them to shooting one’s self in the foot – such a step would prompt an acute negative reaction both from energy buyers and from Iran’s neighbours who earn money from oil and gas exports – Saudi Arabia, the UAE, Kuwait, Bahrain and Qatar. For the last three countries, the Strait of Hormuz is the only route for energy exports.

Three countries in the region are concerned about establishing alternative export routes. Iran built the Goreh-Jask oil pipeline (1 million barrels per day, but only partially used), Saudi Arabia built the East-West pipeline (4.2 million barrels), and the UAE built the Abu Dhabi-Fujairah oil pipeline (1.5 million barrels).

During the war, most tankers left the strait, and freight rates increased. After the end of the strikes, the situation in the strait and in the adjacent countries stabilised. Shipping is now being carried out in full.

Bab el-Mandeb Strait

The Bab el-Mandeb Strait is point of tension in global logistics. It is located between the Red Sea with the Gulf of Aden and is extremely important for global cargo transportation – it connects Europe, Asia and East Africa.

Houthi attacks in the Red Sea have been going on for several years. Military and commercial vessels are under attack. A significant number of carriers prefer not to take risks and deliver cargo by traveling around the Cape of Good Hope. Traffic through the Suez Canal has dropped by more than 60%. The latest attacks on ships occurred on July 6 and 7. The bulk carrier Magic Sea and the dry cargo ship Eternity C have sunk.

The actions of the Houthis are damaging the Israeli economy – the costs of cargo delivery is growing, while the turnover of the Israeli port of Eilat has decreased by 85%. Attempts by a number of Western countries to solve the problem via military means have not proven successful.

There have been no significant changes in the situation since the end of the war.

International North–South Transport Corridor (INSTC)

This transport corridor connects Russia, the Caucasus, and Central Asia with Iran.

A number of experts feared that military action would lead to massive destruction and the paralysis of transit traffic through Iran. The real consequences turned out to be much milder – there were disruptions in transportation schedules, but nothing more. There is no information about significant destruction of the Iranian infrastructure involved in the transport corridor.

The current situation with the INSTC is as follows: the route is in a swing stage. Development is proceeding slowly.

Of the three routes, Western (passing through the Caucasus), Central (directly through the Caspian Sea), and Eastern (through the territory of Kazakhstan and Turkmenistan), the last one is developing most dynamically and consistently. Investments are gradually being made and infrastructure is being modernised. At the same time, the process is taking place without unnecessary politicisation. For Russian industrialists working in the Urals and Siberia, the eastern route is the most understandable and convenient.

At the same time, the state of the railway infrastructure in the countries through which the route passes differs significantly. If in Russia these are double-track electrified railroads, then in Iran there are single-track non-electrified sections, the capacity of which is significantly lower than in the Russian Federation.

The development of the central route is complicated by the slow pace of modernisation of Caspian ports, including the ports of Makhachkala and Olya.

The situation is complicated by the ongoing shallowing of the Caspian Sea. At the moment, the water level in it has reached a historical minimum. Work at the ports of Astrakhan, Aktau, Olya and Kuryk has become complicated.

Information is coming in about plans to abandon dredging in the Volga-Caspian Canal, 188 km long, despite the fact that it was previously positioned as part of the North-South corridor development project. At the same time, Rosgidromet predicts that the situation with the shallowing of the Caspian Sea will not improve in the next 10-15 years.

Some experts have considered the western route of the INSTC, passing through Azerbaijan, to be the most promising. In recent months, however, the future of this route has become questionable – relations between Russia and Azerbaijan have cooled. An additional risk is the possible strengthening of the presence of Great Britain, the USA and Turkey in this territory. After the end of hostilities, there was an assumption that the Iranian authorities, having sensed the vulnerability of sea routes, would finally decide to give serious impetus to the implementation of the North-South ITC project promptly and in full. At the moment, there are no signs that Iran has decided to speed up the implementation of the INSTC. The issue of building the problematic section of the ITC, Rasht-Astara, connecting Azerbaijan with Iran, has not been resolved.

I would like to note that the widespread belief among Russian experts that Iranian officials and businessmen support integration with Russia is inaccurate. The Iranian elites are not monolithic; among the local elites, there are those who sympathise with the West. This significantly affects the speed and effectiveness of the decision-making on the project.

There is also good news, however: the free trade agreement between the EAEU states and Iran, which entered into force on May 15, 2025, gave impetus to the development of the corridor.

Central Asia

The fighting in the Persian Gulf caused concern among transport experts in Central Asian countries. As in the case of the North-South corridor, experts feared a complete paralysis of the Iranian transport system. These fears failed to materialise. The war is over, and cargo continues to flow.

However, even if the negative scenario had been realised, the economies of the Central Asian countries would not have suffered much damage – the main cargo flows to/from the region go in other directions, through Russia, China and the Caucasus.

It would seem that the aggravation of the situation in Iran could have increased the interest of logisticians in alternative projects to the south, for example, in the project to build a trans-Afghan railway (Russia, Uzbekistan, Afghanistan, Pakistan). At the moment, this has not happened. One of the reasons is the security risks associated with the implementation of the project in Afghanistan and Pakistan, which regularly face terrorist threats.

A number of sources report that the conflict between Israel and Iran has caused an increase in China’s activity in the region. Against the backdrop of military activity, Beijing has allegedly become convinced of the vulnerability of energy supplies through the Strait of Hormuz and has decided to speed up the implementation of logistics projects linking China with Iran via Central Asia. These include, for example, the China-Kyrgyzstan-Uzbekistan railway. Changes are being made to the project already agreed upon by the parties, which should increase the capacity of the future transit link.

The option of building another line: China (Kashgar) – Tajikistan – Uzbekistan, is also being discussed. There is no official confirmation of this information.

Conclusion

The 12-day war between Israel and Iran, due to its short duration and limited scale, caused increased market volatility, and a number of transport companies suffered losses. At the same time, the war did not have a serious impact on the dynamics of logistics projects in the world.

The main trends remain the same:

– fragmentation of international trade, regionalisation, reorientation of supply chains,

– growth in the share of container shipping,

– personnel shortage, loss of competencies, degradation of a number of key companies and industries in a number of Western countries,