The ongoing conflict in the Middle East has created a new ripple effect, this time impacting the supply chains of major beverage giants Coca-Cola and Pepsi in the West Bank. Bottlers in the occupied Palestinian territory are facing critical shortages of essential ingredients like cans and sugar due to the prolonged closure of the Allenby bridge crossing, a crucial trade route between Jordan and the West Bank.
The closure, implemented in early September following a deadly attack by a Jordanian gunman on Israeli civilians, has effectively halted the flow of commercial traffic. Previously, sugar and cans were transported to West Bank bottlers from Jordan via the bridge, according to Hatim Omari, manager of a Jericho-based plant that bottles Pepsi, 7UP, and Mirinda for sale in the Palestinian territories and neighboring countries.
The Pepsi facility, which has relied on Saudi Arabia for its sugar supply, ran out of materials for its canned soft drinks about 15 days ago and has been unable to obtain new shipments for over a month. A similar situation is unfolding at the Coca-Cola bottling plant in Ramallah, where the general manager, Imad Hindi, reports running low on certain flavors and facing a shortage of sugar and cans.
“If the situation continues this way, most of the private sector players including us will reach a dead end,” Hindi warned in a WhatsApp message.
The crisis highlights the devastating impact of the conflict on local businesses. The bottlers are not alone in facing supply chain disruptions due to the prolonged conflict. Houthi attacks on cargo ships in the Red Sea have forced some global consumer companies to reroute their merchandise from Asia, opting for a longer journey around Africa.
“From Beirut to Iran to Gaza, it’s really hard to just run a normal business and no one is immune to it,” explained Paul Musgrave, an associate professor of government at Georgetown University in Qatar. “You need sugar, you need cans, you need people, you need electricity, and it’s all being disrupted.”
The West Bank bottlers are facing an additional challenge – the cost of doing business in the Palestinian territories is significantly higher than in surrounding countries. Hindi, the manager of the West Bank Coke bottler, estimates the cost to be five times greater. This makes it even more difficult to maintain operations amid the supply shortages.
At the Pepsi bottling franchise, production has been reduced by approximately 35 percent, dropping from 60 million liters of beverages annually. The facility is now running only one shift per day for its 200 workers, down from three previously. While the plant continues to use plastic bottles, the margins on those are lower, exacerbating the financial strain.
The impact of the crisis extends beyond supply shortages. Consumer-led boycotts of US-based brands like Coca-Cola and Pepsi have also been reported in Muslim-majority countries. PepsiCo CEO Ramon Laguarta acknowledged these “geopolitical tensions” as a factor affecting the company’s business in the Middle East during an investor call on October 8th.
“I don’t think that’s going to change in the coming months,” Laguarta stated. Coca-Cola is scheduled to report its financial results for the third quarter of 2024 on October 23rd.
The recent conflict in Gaza, which saw Israel launch an assault on Hamas following an unprecedented raid by the Palestinian group, has also devastated local businesses. A $25 million Coca-Cola plant in Gaza was destroyed, and a Pepsi bottling plant, partially damaged, ceased operations last October.
This situation in the West Bank highlights the complex challenges faced by businesses operating in conflict zones. The prolonged closure of the Allenby bridge, combined with broader supply chain disruptions and consumer sentiment, has created a perfect storm, leaving bottlers struggling to maintain operations and meet demand. As the conflict continues, the future of these businesses remains uncertain, raising concerns about the economic impact on the Palestinian territories.