No one anticipated that the further escalation of tensions in the Middle East at the end of February would subject the global automotive industry supply chain to another round of "stress testing." As the crisis enters its third week, the near-total closure of the Strait of Hormuz may further drive up logistics costs for automakers—this narrow waterway between Iran and the Arabian Peninsula serves as a critical shipping route for global trade.

According to data from the UK's Lloyd's List Shipping Intelligence, only 77 vessels passed through the strait from March 1 to 13, 2026, compared to 1,229 during the same period last year. The daily average traffic dropped sharply from 138 to 8 ships, a 94% decline. Goldman Sachs estimates that oil flow through the strait has shrunk from over 19 million barrels per day under normal conditions to just about 600,000 barrels. More critically, Iran has begun deploying mines in the strait. Although the U.S. military destroyed 16 Iranian minesweeping vessels, the mine threat has already led to a "soft closure" of the shipping route.

The pressure of core costs has sharply increased

In a report on the impact of war on the automotive industry, S&P Global pointed out that the risk of using the strait has led to an increase in cargo and ship insurance costs. The Strait of Hormuz is the main waterway for raw materials such as aluminum and petrochemical products, as well as oil and liquefied petroleum gas in the surrounding areas of the Persian Gulf. In response to Iran's attacks on ships and deployment of mines, there are reports that US President Trump is calling on allies to send ships in an attempt to reopen the waterway, but no specific plan has been released yet. S&P stated that ships attempting to enter the strait are also choosing alternative routes, with some cargo ships forced to detour around the Cape of Good Hope in Africa, increasing their voyage by about 14 days. This has also resulted in some goods being unable to reach their intended destination, thereby affecting scheduling and contract performance. Not only is the transportation time extended, but energy prices and logistics costs are also affected. The price of Brent crude oil has currently surpassed $100 per barrel, approaching a five-year high. Since the outbreak of the conflict on February 28th, Brent crude oil prices have risen by more than 40%, and oil prices have once approached a high of $120 per barrel.

In addition, Frank Schneller, Executive Director of the European Automotive Logistics Association, stated that logistics costs have risen by 25% to 30% since 2019, driven by high energy prices and labor costs. A car manufacturer recently revealed that this number is closer to 40%. As the crisis intensifies, the challenges faced by car companies become even more arduous. Schneiler stated that in the short term, high energy costs leave logistics companies with almost no room for adjustment. He pointed out that contracts usually include fuel price adjustment clauses linked to fuel costs, but such clauses are usually retroactive and can put cash flow pressure on logistics companies when oil prices skyrocket. Given the abnormal and rapid increase in fuel prices, both sides need to demonstrate flexibility in dealing with this situation, "said Schneiler. Harald Weimer, Global and German Automotive Industry Head at PwC, stated in an email that the sharp rise in energy prices will also drive up the costs of air freight (kerosene) and road transportation (diesel).

Global car companies are widely affected

Faced with numerous cost pressures, experts suggest that car manufacturers have three response paths: cutting costs, diversifying suppliers, or accepting declining profit margins. Pedro Pacheco, Vice President of Gartner Research, said, "Car companies may have to accept thinner profits." He expects car companies to take consistent measures and focus more on cost cutting. Automotive analyst Ferdinand Dudenhofer believes that car companies will try to pass on costs to suppliers, but this approach is difficult to achieve under the existing contract framework. He also stated that car companies will seek new suppliers closer to the factory to avoid long-distance transportation and improve supply chain stability. Stefan Bratzer, director of the Automotive Management Center, said that car companies may try to make consumers bear the costs. But he pointed out that in the context of declining demand and economic downturn, car manufacturers will find it difficult to raise prices. Specifically for different car companies, the chain reaction triggered by the Iran conflict has shown different manifestations. For German car manufacturers, conflicts may disrupt their business operations in the Middle East market. As a key market for luxury brands, the Middle East region has a core customer base of high priced models from ultra luxury brands such as Bentley and Lamborghini. BMW and Volkswagen Group have both regarded it as a highly promising growth area. The escalating hostility between the United States, Israel, and Iran is overturning this expectation.

Last year, the Middle East was Volkswagen Group's second largest rapidly growing region after South America, with revenue growth exceeding 10%. Volkswagen Group CFO Arnold Antelitz stated that the group's own power plants rely on long-term oil and gas contracts, and the direct impact of rising energy prices on the group is currently limited. Oliver Bloom, CEO of Volkswagen Group, also stated at the company's annual press conference on March 10th that the group's supply chain is currently stable. However, this conflict may put pressure on demand in Gulf markets such as Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait. This region is particularly important for luxury brands such as Audi, Porsche, Bentley, and Lamborghini under the Volkswagen Group. Faced with fierce competition in the global market, Volkswagen has already listed the Middle East and Southeast Asia markets as important new export directions, attempting to digest production capacity and boost performance. However, the escalation of the situation in the Middle East has challenged this layout. Porsche mentioned in a recent global press conference that geopolitical uncertainty and the impact of US tariff policies will continue to exist, deepening the challenges faced by the brand in its electrification transformation. The brand has not yet taken into account the potential impact of recent developments in the Middle East, but this highlights Porsche's concerns about the situation in the Middle East, which may further hinder its ability to break through.

Skoda, a budget brand under Volkswagen, has not escaped the impact. This Czech car company previously positioned the Middle East as a growth opportunity market. This brand is a leading brand in the Israeli market and also sells vehicles in the UAE, which is embroiled in regional tensions. Last year, it expanded its presence in the Saudi Arabian market by entering the region. Four weeks ago, the Middle East was still an optimistic source of growth, but now we are paying attention to the market with a certain degree of tension, "Skoda CEO Klaus Zermer said on March 12 when releasing his 2025 financial report. He added that if the conflict eases, demand is expected to stabilize quickly. BMW is most concerned about the supply of raw materials, especially aluminum transported through Dubai. BMW's procurement director Nikola Martin stated at the company's annual press conference on March 11th that the company's supply chain is currently intact, but is closely monitoring the development of the situation. BMW sales director Joachim Goller stated that there has been no significant decline in sales in the region since the escalation of the conflict in early March, but he warned that it is still too early to assess the full impact. By comparison, Toyota's situation is the most difficult. Toyota holds approximately 17% of the market share in the Middle East, making it the car company with the highest market share. Therefore, Toyota became the most severely impacted international giant in this conflict. Toyota was forced to announce a reduction of nearly 40000 vehicles in production for the Middle East market between March and April, with a reduction of 20000 vehicles in March and 18000 vehicles in April, which is equivalent to 60% -70% of its monthly export volume.

Toyota's predicament stems from the fragility of its "zero inventory" production model in times of crisis. The Strait of Hormuz can be regarded as the "main artery" of Toyota's supply chain, with over 90% of Japan's crude oil imports relying on the Middle East, of which about 70% -80% must pass through the Strait of Hormuz. Moreover, Toyota's best-selling SUVs such as Land Cruisers in the Middle East rely on Middle Eastern made components, and the blockade of the strait has resulted in key components being unable to arrive on time. Production adjustments have affected 5 factories and 7 production lines in Japan. In fact, the Japanese and Korean automotive industries, represented by Toyota, are facing special challenges in the Strait of Hormuz crisis. These two countries are not only highly dependent on the Middle East for raw material supply, but their geographical location also makes their supply chains almost entirely dependent on the Strait of Hormuz. Honda, Nissan, and others have large sales networks and production bases in the Middle East, and the blockade of the Strait of Hormuz poses a risk of a complete shutdown of these businesses. Among Chinese car companies, Chery Automobile has been hit the hardest. Chery has the deepest layout in Iran, with a factory with a production capacity of 60000 vehicles at its peak. It has established over 150 sales and service outlets in multiple cities such as Tehran and Mashhad, relying heavily on local trade and assembly. In 2017, Chery entered the top three automobile brands in Iran with a market share of nearly 20%.

Nowadays, car companies such as Chery and Changan, which have long been deeply involved in the Middle East market, are under pressure. They adopt a contractionary operation, freezing new project investments, compressing local team size, and only maintaining minimal after-sales response and emergency parts dispatch. Chinese car brands such as BYD have turned to external port unloading and inland transportation plans, relying on safe ports such as Oman and the United Arab Emirates, and accelerating the construction of KD parts assembly factories in Saudi Arabia, Egypt, and other places to reduce dependence on sea transportation.

Supply Chain Impact: Potential Interruptions in Aluminum, Plastic, and Chip Supply

The impact of this crisis on the global automotive industry is comprehensive, and for the entire automotive industry chain, the pressure on OEMs is only the end link. The Middle East produces about 10% of the world's aluminum and is an important supply source for major markets such as the United States; Qatar accounts for approximately 30% of the global helium supply, which is a critical material for semiconductor manufacturing; Meanwhile, the Middle East is also a major producer of petrochemical products such as automotive plastics and chemical raw materials. Therefore, global car manufacturers, component suppliers, and chip manufacturers are re examining their supply chains. Dan Hersch, co head of global automotive and industrial business at iResearch Consulting, said, "The crisis is layered and the difficulty of coping is exponentially increasing." Analysts pointed out that companies that rely on Middle Eastern aluminum resources are seeking alternative supply sources for the metal; Meanwhile, the Middle East is an important producer of key materials for semiconductor production, which means that the automotive industry may face a new round of chip challenges. If oil prices remain high, it will not only significantly increase gasoline prices, but also affect the cost of plastics and other petrochemical products used in the industry.

Analysts believe that the extent of conflict destruction mainly depends on its duration. Quick resolution can minimize losses, while long-term conflicts can lead to unpredictable material shortages. Hersch said, "If the conflict continues for several weeks, there will inevitably be a shortage of supplies for some companies, but I cannot predict which specific materials or links will have problems

In recent years, the automotive industry has been plagued by supply chain uncertainties due to chip shortage, US tariffs, inflation and the Russia-Ukraine conflict, forcing enterprises to frequently adjust and re plan their supply chains. Colin Shaw, President of the American Association of Automobile and Equipment Manufacturers, said, "There are too many problems facing the industry." He said that the association is closely monitoring the situation, but has not yet received reports of direct impact on domestic production in the United States.

Nevertheless, suppliers are still strengthening their supply chain resilience.

According to Bloomberg on March 10th, citing informed sources, Japanese and Korean automotive parts suppliers are in talks with Russian company Rusal International regarding the procurement of aluminum alloys, while also communicating and cooperating with companies in India and other parts of Asia. The North American automotive industry, especially the United States, relies more on Middle Eastern raw materials than many people imagine. According to data from the United States International Trade Administration, by 2025, the United Arab Emirates will be the second largest exporter of aluminum to the United States, while Bahrain, an island nation located in the Persian Gulf, will be the fourth largest; Freight from India, the fifth largest aluminum exporting country in the United States, may also be affected by companies avoiding transportation in the region. Sam Fiorani, Vice President of Global Model Forecasting at Automotive Forecasting Solutions, stated that while companies are aware of aluminum resource substitution channels, changing suppliers or adjusting freight routes will increase costs and delay delivery. He admitted, "The cost of enterprises will inevitably rise." In addition, South Korean government officials warned that the Iran conflict may disrupt the supply of semiconductor production materials such as helium. Helium is only produced in a few countries, with Qatar being one of the main producers. At the same time, Roland Berger Consulting analysis suggests that the continued interruption of petrochemical supply may increase the cost of automotive plastics and chemical products by 15% to 25%. Roland Berger pointed out that a regular passenger car is equipped with 330 to 440 pounds of petrochemical based plastic components, and the Middle East is the main supplier of such materials. The increase in costs will squeeze the profit margins of suppliers and push up production costs for car companies.

Fiorani stated that although the Middle East is not a major producer of automobiles and primary components, it holds a crucial position in the automotive supply chain, and this crisis is an example of this. He said, "The obstruction of trade channels and supplier operations in the region will become a bottleneck for North American automobile production." Several car companies are closely monitoring the situation in the Middle East. A Volkswagen spokesperson told the media that the company is "deeply concerned about the regional situation" and is continuously evaluating the potential impact on operations. "Ensuring the safety of regional employees is the top priority. Luxed Automotive, which has an expanding assembly plant in Saudi Arabia, stated that as of now, the conflict has not affected its production and construction work. On March 6th, a spokesperson for the American car brand Lucid stated, "We will certainly continue to closely monitor the situation." The Saudi Public Investment Fund holds a majority stake in Lucid. This car company, headquartered in Newark, California, USA, will start production at a factory near the Saudi port city of Jeddah in 2023, assembling complete vehicle parts shipped from Arizona, USA, with an annual production capacity of 5000 vehicles. At present, the factory is expanding into a complete manufacturing base. Mark Winterhoff, the interim CEO of Luxide, stated in February that the project is progressing as planned and will produce a new mid size crossover model by the end of this year. Analysts say that if car companies end up with component or raw material shortages due to conflicts, they are likely to prioritize producing the most profitable models. During the chip shortage period, car companies abandoned low profit and low-priced models and prioritized the production of high profit and high price models. Fiorani said, "The current core is to ensure the production and delivery of profitable vehicle models." Core supplier executives are also closely monitoring the situation. Bosch CEO Stefan Hartmann stated to Bloomberg that the situation is expected to gradually stabilize. Bosch's operations in the United Arab Emirates are currently experiencing limited disruptions, but the air freight volume to the region has decreased. Schaeffler CEO Klaus Rosenfeld warns that if shipping routes are affected, the situation could worsen. If military action disrupts the shipping of the Suez Canal, the situation will become critical, "he said during the company's annual performance briefing. Schaeffler does not have a production base in the Middle East, but has a logistics warehouse in Dubai. S&P Global Automotive stated that it still "assumes short-term conflicts" in its car production and sales forecasts, but also pointed out that if "the rise in commodity prices spreads throughout the economy and supply chain, it will further affect household budgets and trigger a chain reaction of declining car sales.