The conflict in the Middle East causes widespread disruption, both significant and minor. Its repercussions are likely to affect nearly all businesses.
Beyond the inherent human and environmental tragedies of the Middle Eastern conflict, additional consequences are expected. Apple’s shareholders, much like the broader financial markets, are undoubtedly apprehensive about the conflict, which carries the risk of escalating and detrimentally affecting both the region and the wider world.
Given that Apple’s headquarters in Cupertino, CA, are geographically distant from the conflict zone, one might wonder about investor concerns. However, a range of potential issues, including supply chain interruptions, manufacturing challenges, and rising energy expenses, are now emerging on the horizon.
Immediate regional impacts
Apple has been compelled to close offices and retail establishments in several locations, including the UAE, due to security apprehensions. Stores in Dubai, Abu Dhabi, and Al Ain have all seen their personnel shift to remote work. The regional aggressions also mean that Apple products are not being purchased by tourists and affluent clients, as consumer activity has ceased.
A secondary local repercussion that has not been widely discussed pertains to the impact on the company’s Israel-based R&D activities. Its R&D hub in Herzliya is among its largest, with comparable facilities in Haifa and Jerusalem. While prevailing censorship prevents us from knowing the full extent to which these sites have been affected by the conflict, it is improbable that they are operating under normal conditions. More broadly, revenue losses, interruptions to retail and customer support, the potential compromise of R&D data, closed laboratories, and effects on processor design—all these factors could lead to broader, region-wide challenges.
In our interconnected world, events in one location can cascade into others.
Immediate supply chain effects
An example of this can be seen in logistics and transportation. Apple has been investing in a product transportation hub in Riyadh, Saudi Arabia.
Last year, Saleh Al-Jasser, Saudi Minister for Transport and Logistics, stated: “Apple plans to establish a regional distribution center in the zone as part of its broader strategy to set up an assembly line, alongside maintenance services and light manufacturing in the future.”
This investment underscores the region’s crucial role in the company’s supply chain. However, just as the conflict is already disrupting air travel in the area, it will also impact global product logistics. Apple’s investment in Riyadh suggests the region may be vital for the company’s air logistics as it ships iPhones from India and China. And while I assume Apple’s operations team has already implemented a contingency plan, the conflict could cause delays in iPhone distribution and will certainly contribute to increased logistics costs and operational difficulties.
It is highly probable that the conflict will also lead to higher insurance premiums for cargo, further straining margins across the Apple supply chain. Given that the insurance sector continues to contend with challenges since the COVID-19 pandemic, there’s no assurance that these insurance premium increases will significantly decrease once the current crisis subsides.
Manufacturing challenges
Consider this: Oil is the essential element of the global economy, interwoven into nearly every aspect of daily life—how we travel, product packaging, the food we consume, and the fuel for our vehicles. Both shipping and air transport depend on oil, and chip manufacturing is particularly susceptible to an oil-price shock as it requires significant energy to produce components, especially processors. Even based on transit costs alone, oil price volatility is detrimental.
This strain will manifest somewhere, implying that some of the company’s downstream component suppliers might default on contracts, either due to an inability to procure components or to do so profitably. Apple will not be the sole company to experience this hardship; it is likely to exacerbate pressure on the already strained memory market.
All these factors create a constellation of consumer difficulties, but the impact extends beyond the cost of technology.
Inflation and demand
As energy costs climb, consumers will observe increases in food prices at grocery stores and fuel prices at the pump. Regarding food supply, the timing of the conflict is critical because a substantial portion of the nitrogen used in fertilizers by farmers globally typically passes through this region. This period marks the peak planting season in the Northern Hemisphere, which means fertilizer shortages at a crucial time for agriculture. Naturally, food must be planted before it can be consumed, and any deficit in fertilizer implies that some effects of the current conflict, such as reduced food yields and rising food prices, will only become apparent months later.
What relevance does this have for Apple? It’s straightforward. As consumers’ financial resources are stretched by increasing prices for essential goods, consumer confidence will decline. This translates to reduced demand for tech products, extended upgrade cycles, and sluggish sales. It could also intensify pressure on consumer credit; defaults might rise, making credit more difficult to obtain, which in turn could diminish interest in the latest high-end Apple products.
(Although this could also mean that the MacBook Neo might be perfectly timed for a consumer market facing financial constraints.)
Component supply
This is assuming, of course, that any stock is even available for purchase in stores.
The Middle East is a significant source of numerous components and materials essential to the global tech industry. These include helium, nitrogen, argon, and specialized process gases like silane, which are crucial for advanced electronics manufacturing.
However, one of the most critical materials used across Apple products that could be impacted by the conflict is aluminum; its smelting is heavily concentrated in the Gulf region, which accounts for 9% of global aluminum output. ING reports that: “In a severe disruption scenario, aluminum prices could briefly exceed $4,000/t, though a reduction in demand would likely cap further increases.”
Apple incorporates a substantial amount of aluminum into its products, though we can hope that the effect of any scarcity on Cupertino might be mitigated by the company’s industry-leading adoption of recycled aluminum in its offerings. (Apple states that the MacBook Neo utilizes 90% recycled aluminum.)
Connecting the dots
Beyond the preventable, tragic, and ongoing loss of human lives, I am certain there are additional repercussions that Apple and the broader tech industry might face due to this conflict, including an unavoidable surge in state-sponsored cybercrime.
Apple is not unique in experiencing these collateral effects, nor is it likely to be the most severely impacted. However, much like a stone dropped into the center of a pond creates ripples that spread across the entire body of water, the global economic fallout from the conflict will only become truly apparent months after all involved parties manage to resolve their differences.
