Hormuz meltdown: UN warns small businesses face extinction as trade route collapses
Orisemeke Benjamin
Small and medium-sized enterprises (SMEs) worldwide risk being permanently shut out of global supply chains as the fallout from disruptions in the Strait of Hormuz deepens, the United Nations Conference on Trade and Development (UNCTAD) has warned.
The Strait is a chokepoint that normally carries about a fifth of global seaborne oil.
In a new report, “Smaller Firms, Greater Risks,” UNCTAD said transit through the strait has collapsed by more than 95 per cent since disruptions tied to the Iran-related conflict began, sending oil prices toward $100 a barrel and driving up freight, insurance and financing costs across the board.
While large corporations can absorb the shock by spreading risk across multiple suppliers, markets and financiers, UNCTAD said, smaller firms typically cannot.
The agency warned this could trigger what it called an “SME exclusion effect,” where smaller companies are forced to scale back production, delay investment or exit supply chains altogether even after trade volumes eventually recover.
SMEs account for roughly 90 per cent of businesses worldwide, about 70 per cent of employment and half of global GDP, according to the report, making their vulnerability a systemic risk rather than a niche concern.
“Smaller firms are at the heart of the global economy,” the report noted, warning that when SMEs falter, growth becomes less inclusive and less resilient across value chains.
The UN said the strait’s near-standstill is projected to shave at least one percentage point off annual global trade growth in goods, while stoking inflation through higher crude prices.
UN Spokesperson Stéphane Dujarric, said the Security Council has weighed in on the crisis, noting “the Council has issued a resolution on this matter” as the world body pushes to restore freedom of navigation through the waterway.
UNCTAD is urging governments to widen access to trade finance, affordable energy and logistics support to keep smaller firms inside global value chains, and has called on development banks to make emergency financing available to cushion the blow.
For Nigeria, whose economy leans heavily on crude exports and imported inputs for its manufacturing and trading SMEs, the warning carries direct weight. A prolonged spike in shipping and insurance costs out of the Gulf typically feeds through to freight rates on routes serving West Africa, raising landing costs for imported machinery, spare parts and raw materials that many Nigerian small businesses depend on — even though Nigerian crude does not transit Hormuz.
Analysts say the bigger exposure for Lagos and Port Harcourt-based SMEs lies in the knock-on effect of higher global oil prices on naira liquidity, fuel costs and import bills, at a time many are still absorbing the cost pressures of the past two years.
