Conflict in the Middle East involving Iran, Israel, and the United States (US) continues to escalate, with the US President Donald Trump ordering strikes against Tehran’s nuclear facilities on 21 June and Iran retaliating with missiles targeted at the US Al Udeid Air Base in Qatar on 24 June.
The conflict has already caused disruption to the commercial aviation industry, with many flights through the region cancelled or redirected. While coffee isn’t grown commercially in Iran or Israel, the conflict has the potential to impact the way green beans are transported around the world, according to Dominic Enthoven, Principal Advisor at MPC International.
“Until late 2023, most of the world’s shipping routes went through the Suez Canal, including many transporting green coffee. However, Iranian-backed Houthi rebels started attacking shipping, so instead the ships were deviated around the Cape of Good Hope. This added around 10 days to the transit time, as well as huge costs, and mopped up significant shipping capacity,” says Enthoven.
This primarily impacted coffee being exported from producing countries in East Africa, such as Ethiopia, Kenya, Rwanda, and Uganda, which would make its way either through the Suez Canal to Europe and then North America, or move in relay over Asian hubs to markets such as Oceania. However, the worldwide tightening in shipping capacity, schedule disruption, port congestion, and container availability also affected coffee coming from Vietnam, Indonesia, and other Asian countries.
“In the past few months there have been some glimmers of hope that shipping lines may start to review a possible return to a Suez Canal transit for some of their services by end 2025/early 2026. One major carrier, CMA CGM, had in fact directed some of their services back through the Suez. Latterly in agreement with the Trump Administration, Houthi rebels had also said they wouldn’t go after US shipping interests that were not calling Israel’s ports,” Enthoven says.
“Opening up the Suez route would improve transit time for coffee and release more worldwide shipping capacity back in the system, which would in theory reduce freight rates.
“But now with this escalated conflict between the US and Iran, any hope of more Suez Canal transits must surely be on ice. No one is going to do it due to the insurance premiums of shipping, which are already elevated at the moment.”
Enthoven also raises the issue that if the Iranian Government puts an embargo on the Strait of Hormuz – through which about 30 per cent of the world’s crude oil transits – as rumoured, shipping prices would increase even further.
“If there were an embargo it would limit any traffic, which would cause the oil price to spiral upwards. The shipping lines have a BAF or bunker adjustment factor for fuel [a surcharge added to freight rates to cover variable fuel costs], therefore coffee importers would see their freight costs increase due to higher BAF levels,” he says.
At time of going to press, some references to a ceasefire agreement between Iran and Israel were being reported, though the situation is dynamic and will need to be closely watched.
The International Chamber of Shipping estimates that sea transport contributes just US$0.04 to a $3.40 cup of coffee. Yet, for importers and roasters trading on a much larger scale the impacts could be significant.
