The human and environmental costs of the ongoing conflict in the Middle East are bad enough on their own, but there are other impacts likely to be felt. Along with most financial markets, Apple’s shareholders are no doubt spooked by the conflict, which threatens to metastasize to the detriment of the region and the world.

Yes, Apple in Cupertino, CA is a long, long away from that region, so why would investors be concerned? Because of a host of potential problems — from supply chain disruptions to manufacturing worries and rising energy costs — are now on the horizon.

Immediate regional impacts

Apple has had to close offices and retail stores in several places, including the UAE due to security concerns. Stores in Dubai, Abu Dhabi and AI Ain have all seen staff forced to work from home. The attacks across the region also mean Apple products are not being sold to tourists and affluent customers, as no one is shopping.

A second local impact that hasn’t been discussed is the extent to which the company’s Israel-based R&D operations have been affected. It’s R&D center in Herzliya is one of its biggest such hubs, and it has similar setups in Haifa and Jerusalem. While ongoing censorship means we don’t know the extent to which those locations have been affected by the conflict, it’s unlikely they are operating as usual. More broadly speaking, revenue losses, disruptions to retail and customer care services, the potential loss of R&D data, closed laboratories, and impacts on processor design — all these can create larger, pan-regional problems.

On a globally-connected planet, changes in one place can spill over into others.

Immediate supply chain effects

One illustration of this involves logistics and transportation. Apple has been making investments in a product transportation hub in Riyadh, Saudi Arabia. 

Saudi Minister for Transport and Logistics, Saleh Al-Jasser, last year said: “Apple will set up a regional distribution center in the zone as part of its plans to establish an assembly line, along with maintenance services and light manufacturing going forward.”

That investment underlines the important place the region plays in the company’s supply chain. But, just as war is already disrupting air transport in the region, it will disrupt global product logistics, too. Apple’s investment in Riyadh suggests the region may be important to the company’s air logistics as it exports iPhones from India and China. And while I imagine Apple’s operations team has already implemented a backup plan, the conflict could create delays in iPhone distribution and certainly will contribute to higher logistics costs and management challenges.

It seems probable the conflict will also lead to higher insurance premiums for cargo, putting further pressure on margins across the Apple supply chain. Given the insurance industry continues to struggle with problems since the COVID-19 epidemic, there’s no guarantee those insurance premium price increases will fall much after the current crisis.

Manufacturing challenges

Think of it this way: Oil is the lifeblood of the global economy. It is deeply woven into everything you do — how you travel, packaging, the food you eat, and the gas you use to fill your car. Shipping and air transport rely on oil, and chip manufacturing is particularly vulnerable to an oil-price-based shock as it seeks the energy to build some components, particularly processors. On the basis of transit costs alone, oil price fluctuations hurt.

That pressure will show up somewhere, which means some of the company’s downstream component suppliers may have to renege on contracts, either because they can’t source components or can’t do so profitably. Apple won’t be the only company to feel this pain – it’s likely to create even more pressure on the already stretched memory market. 

All these effects create a constellation of consumer misery, but this goes beyond the price of tech.

Inflation and demand

As energy prices rise, consumers will see the cost of the food in their stores and the gas in their tank increase. When it comes to food supply, the timing of the conflict is serious because so much of the nitrogen used in fertilizers by farmers worldwide ordinarily ships through the region. This is peak planting season in the Northern hemisphere, which means shortages of fertilizer at a critical time for agriculture. Of course, you need to plant food before you eat it, and any shortage in fertilizer means some of the effects of the current conflict won’t become visible for months as food yields shrink and food prices rise. 

What does this have to do with Apple? Simple. As consumers find their pocketbooks squeezed by price increases for the basics they need, consumer confidence will erode. That means less demand for tech products, slower upgrade cycles, and sluggish sales. It could also generate added pressure on consumer credit; defaults might increase making credit harder to secure, which in itself may erode interest in the latest shiny Apple products.

(Though this could also mean the MacBook Neo couldn’t have been better timed for a price-constrained consumer market.)

Component supply

That’s assuming there’s any available stock in the shops to purchase in the first place.

The Middle East is a major supplier of many of the components and materials used by the global tech industry. These include helium, nitrogen, argon and speciality process gases, such as silane, which are used in advanced electronics fabrication.  

But perhaps one of the most important materials used across Apple products that may be affected by the war is aluminum; smelting of it is concentrated in the Gulf, which accounts for 9% of global aluminum production. ING reports that: “In a severe disruption scenario, aluminum prices could briefly move above $4,000/t, although demand destruction would likely limit further upside.” 

Apple uses lots of aluminum in its products, though we can hope that the impact of any shortage on Cupertino might be limited by the company’s industry-leading use of recycled aluminum in its products. (The MacBook Neo uses 90% recycled aluminum, Apple says.)

Connect the dots

Beyond the preventable, tragic and ongoing loss of lives, I’m sure there are additional consequences Apple and the wider tech industry might be vulnerable to as a result of this conflict, including an inevitable increase in state-sponsored cybercrime.

Apple is not alone in feeling any of these side effects, nor is it likely to be the most exposed to impact. But just as a stone thrown into the center of a pond creates ripples that spread across the whole body of water, the global economic damage of the conflict will only be truly visible months after all parties involved in it find some way to resolve their differences. 

You can follow me on social media! Join me on BlueSky,  LinkedIn, and Mastodon.