Strait of Hormuz disruptions could hit smaller firms hardest, UNCTAD warns

Disruptions in the Strait of Hormuz could place disproportionate pressure on smaller firms that account for 70% of global employment, according to a new analysis by UN Trade and Development (UNCTAD). The analysis, released on 7 September, warns that trade shocks in this strategic corridor could deepen inequalities across global value chains. It highlights the outsized role of small and medium-sized enterprises (SMEs) in worldwide economic activity. It also cautions that recovery in headline trade figures could mask a more concentrated economy. The findings underscore the urgency of protecting smaller firms from prolonged trade disruptions.

SMEs account for around 90% of businesses globally, 70% of employment and 50% of GDP. They are also crucial suppliers of goods and services across value chains, supporting entrepreneurship, innovation and economic diversification. Larger companies can often spread risks across suppliers, markets and sources of finance. Smaller firms, by contrast, typically have fewer alternatives when energy, transport and financing costs rise. This imbalance makes them more exposed when shocks hit global trade routes.

The consequences can extend beyond the immediate shock, with smaller firms remaining at risk of exclusion from value chains even when overall trade volumes recover. UNCTAD describes this dynamic as a risk of an “exclusion effect.” The COVID-19 crisis showed that smaller firms are more vulnerable to major shocks, with sales declines generally larger among firms in developing countries. During that period, 88% of small firms in developing economies reported a decrease in sales, compared with 64% in developed economies. Average sales declines reached 57% for small firms in developing countries, against 40% in developed ones.

Smaller firms also face higher borrowing costs, averaging 15.8% in developing economies compared with 6.3% for large firms in the same countries. “When SMEs falter, growth becomes less inclusive and less resilient,” the analysis states. UNCTAD notes that a prolonged trade disruption could amplify existing vulnerabilities, particularly in developing economies where businesses may have fewer options for financing, sourcing inputs or reaching alternative customers. The analysis draws on data from Clarksons Research, J.P. Morgan and the OECD Financing SMEs and Entrepreneurs Scoreboard. It links these trends to fluctuations in crude oil prices and ship transits through the Strait of Hormuz.

The analysis highlights the need to keep not only trade moving, but also smaller firms connected to markets. This includes closer monitoring of firms’ participation in trade, along with stronger access to trade finance, liquidity and working capital. Public support can further help improve access to reliable and affordable logistics, facilitate trade and expand access to market information and other business services, particularly in developing economies. Strengthening smaller firms’ productivity and competitiveness can help them maintain and diversify supplier and customer relationships. Together, UNCTAD says, these measures can help protect jobs and strengthen resilience to future shocks.