Within less than two weeks of the Iran-Israel-US conflict, the broader impact is already disrupting shipping, causing turmoil in oil and energy markets. The Strait of Hormuz is now closed, a crucial route that accounts for about 20% of global oil, nearly one-third of liquefied natural gas (LNG), and 2%-3% of the world's container traffic, ResourceWise reported last year as tensions escalated between Israel and Iran. A lot of shipping traffic has been stalled or rerouted, freight insurance premiums and war-risk surcharges are rising, and several carries have suspended operations in the region.

The outsized impact that oil prices have on the global economy means higher fuel and energy prices are all but guaranteed for many countries, not just those in the conflict region. The cost of a barrel of oil has topped $100 for the first time since 2022. And, according to Marko Summanen, Vice President, Forest Value Chain Europe at ResourceWise, European natural gas prices have jumped by €30/MWh in just two weeks, suppressing industrial demand for paper mills as production costs soar.

Europe’s Lumber Trade Exposed
In the forest products sector, softwood lumber trade is one of the most directly exposed segments. Europe accounts for about one-third of the global softwood supply. Sweden and Finland are among Europe’s top exporters of softwood lumber, along with Germany and Austria. Nordic lumber is exported to Europe, the Middle East-North Africa (MENA) region, China, and Japan. According to WoodMarket Prices (WMP) data, Middle East countries import less than 3 million m3 of softwood lumber annually, and the MENA region as a whole is viewed as having significant growth potential.

Lumber shipments out of Europe rely heavily on shipping routes through the Mediterranean, the Suez Canal, and the Gulf. Shipping costs are expected to escalate as fuel prices and risk premiums rise. Spikes in freight and insurance, along with rising energy costs in production and transport, could quickly start to make Nordic lumber less competitive while tightening margins.

Middle Eastern construction markets are heavily dependent on imports of lumber and other wood products, as they have limited natural resources for construction. If the current conflict escalates, it could slow economic activity, delay construction projects, and tighten financing and logistics, likely reducing demand for imported lumber. Kirill Baranov, founder of Signals from the Wood, said in a March 7 update that delayed shipments of raw materials and equipment are already forcing some Gulf companies to reassess construction project deadlines and terms.

Potential to Alter Global Timber Trade Flows
The Middle East has been a significant market for Nordic lumber, particularly when European construction demand has been weak. Prolonged disruption in that region could force Nordic lumber producers to redirect volumes to Europe, North Africa, and Asia, potentially causing temporary oversupply and price pressures in those markets. “Iranian attacks against industrial and logistical capacities in the Gulf will add up to the temporary drop in timber demand,” said Baranov. “This raises the question of where the MENA-bound European and Russian lumber will go. We will probably see intense competition in North Africa.”

Russia was once one of the world’s largest softwood lumber suppliers. In recent years, it has redirected its exports towards Asia and emerging markets. About 60% of Russia’s softwood lumber exports go to China. However, Russian exports to the MENA region have been growing. If logistics disruptions ease in the region and Russia’s market expansion continues, Nordic lumber exporters will have more competition.

Timber markets rely heavily on long-distance maritime trade, and trade flows can shift quickly as a result of geopolitical disruptions or policy changes. In the past decade, those trade flows have been tested by the Covid pandemic, the Russia-Ukraine war and subsequent sanctions, the Red Sea crisis that began in October 2023, and US tariffs.

The Iran conflict could accelerate structural shifts that have the potential to reshape global timber trade flows in the future. It is the second conflict-driven logistics disruption in the Middle East in a little over two years. So perhaps one of the questions that will take some time to answer is whether the Middle East remains a stable import market for lumber.

Source: resourcewise.com