Will the Middle East conflict affect coffee prices in Australia? – BeanScene

The conflict in the Middle East involving the United States (US), Iran, and Israel has escalated over the past few days, with Iran’s retaliatory strike on the US Al Udeid Air Base in Qatar on 24 June causing flights from Australia to Europe transiting through the Middle East to be cancelled.

While it’s clear why the aviation industry has been impacted by the conflict, its link to the coffee industry and the possible ripple effects it may have on the price of a cup in Australia aren’t so obvious.

According to Dominic Enthoven, Principal Advisor at MPC International, the conflict will further influence the way green beans are transported around the world.

“Until late 2023, much 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 a lot of worldwide shipping capacity,” says Dominic.

“In the past few months there have been some glimmers of hope that shipping lines may be reviewing a possible return to a Suez Canal transit for at least some of their services by end 2025/early 2026. Latterly, the Houthi rebels had also said they wouldn’t go after US shipping interests that weren’t docking in Israel’s ports.”

However, Dominic believes the escalating conflict in the region will put an end to any hopes of quicker transit times and more cost-effective shipping options.

“Opening up this route would improve transit time for coffee and put significantly more capacity back in the system, which would in theory reduce freight rates,” he says.

“But now with this escalated conflict between the US and Iran, any hope of seeing more Suez Canal transits is on ice. No one is going to run that risk due to the insurance premiums of shipping, which are already elevated at the moment.”

What’s more, the rumoured embargo of the Strait of Hormuz – through which about 30 per cent of the world’s crude oil transits – by the Iranian Government could see shipping prices 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 [an extra surcharge added to freight rates to cover variable fuel costs], therefore coffee importers would see their overall freight costs increase,” says Dominic.

While Australia and New Zealand are located thousands of kilometres from the Suez Canal, much of the coffee transported from East Africa to the region is first shipped either in relay via Europe or via Asian hubs such as Singapore.

“There are very few direct shipping services from Africa or the Middle East to Oceania. Coffees from South America, Central America and Africa are usually brought to shipment hubs in Europe or Asia and then transferred to vessel systems heading this way,” says Dominic.

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 $0.06 to a $5.20 cup of coffee, but for importers and roasters trading on a much larger scale the impacts could be significant.