How Geopolitical Competition Shapes Supply Chains

For much of the post-Cold War period, supply chains were constructed on a set of widely shared assumptions: that globalization would deepen, economic interdependence would dampen conflict and efficiency could be pursued with limited regard for geopolitical risk. Those assumptions can no longer be treated as reliably as they once were, and the result is the reconfiguration of globalization.

The concerns around the Strait of Hormuz provides a useful lens through which to understand this transition. It's a reminder that vulnerabilities long recognized in theory can manifest quickly and at scale in practice.

In the year prior to the recent heightened tensions in the Middle East, some 86% of companies reported experiencing a supply chain loss — ranging from financial damage and missed deadlines to operational disruption. Across multiple analyses, the drivers are consistent: tariffs and trade disputes, geopolitical instability, and competition over critical inputs such as energy, minerals and advanced technologies.

At the same time, global risk assessments have tended to treat supply chain disruption as a second-order effect rather than a primary risk. In the WEF's Global Risks Report 2026,¹ for example, "disruptions to a systemically important supply chain" ranked low as a likely trigger of a global crisis, even as "geoeconomic confrontation" ranked near the top. The implication isn't that the risks were invisible, but that their pathways into real economic disruption were underestimated.

A trade system under structural pressure

The Strait of Hormuz remains one of the most critical energy chokepoints in the world. Roughly 20% of global oil consumption passes through it and disruption there does not remain local. It transmits through energy markets, insurance pricing, shipping routes and financial conditions, ultimately shaping the cost structures of industries far removed from the Persian Gulf.

Decisions that would once have been made over months or years — rerouting logistics, sourcing alternative suppliers, adjusting inventory strategies — are now being made under compressed timelines and incomplete information.

The South China Sea and the Strait of Malacca sit astride critical trade flows linking Asia to global markets. Taiwan occupies a central position in advanced semiconductor production, particularly in cutting-edge foundry capacity.

Rare earth supply chains remain heavily concentrated geographically and industrially. Undersea data cables carry the vast majority of global digital traffic through a relatively small number of nodes.

Each of these represents a point at which economic interdependence can be leveraged for strategic effect.

Economic integration is no longer viewed solely as a source of efficiency and mutual gain. It's increasingly seen as a domain of strategic competition, one in which dependencies can be shaped, exploited and, if necessary, disrupted.

These dynamics are already visible in export controls on advanced technologies, restrictions on critical minerals, sanctions regimes and targeted disruptions to infrastructure and logistics.

The Strait of Hormuz: A case study in supply chain and geopolitical risk

The Strait of Hormuz concentrates a disproportionate share of global energy flows within a narrow maritime corridor. When that corridor is disrupted — whether through direct military action, the threat of escalation or changes in insurance and security conditions — the effects propagate rapidly.

Shipping patterns are altered, vessels are delayed, rerouted or withdrawn, and war risk insurance premiums typically rise, changing the economics of transit. Energy markets respond to perceived scarcity and uncertainty. Downstream industries — including manufacturing, aerospace, agriculture and construction — may face higher input costs and potential supply shortfalls.

Higher energy costs feed into transportation costs, which feed into the price of goods. Delays in delivery affect production schedules and contractual obligations. Financial exposures, particularly in trade credit and project finance, can become more complex as the reliability of underlying supply chains comes into question.

Four lessons from the Strait of Hormuz

The Strait of Hormuz shipping constraints highlight four lessons that extend well beyond the Persian Gulf.

Taken together, these lessons point to a system that is more exposed than it appears — not because it's poorly designed, but because it was optimized for a different geopolitical context.

From efficiency to resilience: The supply chain's ability to absorb disruption

Companies are responding. The direction of travel is clear: diversification, redundancy and proximity.

Onshoring and nearshoring are gaining momentum as firms seek to reduce exposure to distant and potentially unstable regions. Friendshoring — shifting supply chains toward politically aligned partners — reflects the same logic.

These trends were already underway, driven by trade disputes and rising geopolitical tension. What has changed is the urgency and as a result, decisions that may have previously been deferred are now being accelerated.

But diversification has limits. Some supply chains cannot be easily reconfigured. Rare earths, advanced semiconductors, and certain energy flows remain constrained by geology, technology and capital intensity. These constraints will shape the pace and extent of change.

Perhaps the most important shift is conceptual. Resilience is no longer defined as the ability to prevent disruption. That is no longer realistic. Instead it's defined as the ability to absorb disruption and maintain continuity.

These developments have direct implications for how risk is assessed, priced and transferred.

Demand is growing for creative risk financing solutions, including trade credit insurance, contingent business interruption coverage and political risk insurance. Firms are seeking protection against both direct physical loss and against the cascading effects of supply chain disruption on business costs and operations.

At the same time, insurers are reassessing how they deploy capital. Some are willing to expand capacity in response to demand, while others are becoming more selective, particularly in areas where risks are more difficult to quantify or correlate.

The result is a more differentiated market. Firms that can demonstrate diversified supply chains, alternative sourcing strategies and operational resilience are likely to be viewed more favorably by their partners, including insurers. The link between operational strategy and insurability is becoming more direct.

For brokers and advisers, this creates both a challenge and an opportunity. The role continues to expand beyond risk placement to include risk identification, mitigation and strategic advice. That requires a more integrated understanding of geopolitics, operations and finance and how these different exposures interact.

Adapting to the new normal: A structural transition

Despite the challenges, supply chains will continue to function and trade will continue to flow. But the assumptions that underpinned the previous era — predictability, neutrality and ever-increasing integration — are no longer as reliable as they once were. The task for businesses isn't to restore the old model but to adapt to the new one.

That shift will not be uniform. It will vary by sector, geography and risk tolerance and it will involve trade-offs between cost and resilience, efficiency and redundancy, global reach and local control.

But the direction is clear. Resilience, in this environment, isn't a defensive posture. It's a prerequisite for operating in a system where disruption isn't the exception, but part of the landscape moving forward.

Sources

¹"Global Risks Report 2026," World Economic Forum, 14 Jan 2026. PDF file.

Disclaimer

This article is for general informational purposes only and does not constitute legal, financial, insurance coverage or risk management advice. Coverage availability and terms vary by policy, insurer, jurisdiction and individual risk profile. Organizations should consult their insurance, legal and other professional advisors regarding their specific circumstances.