For many corporate leaders, energy risk means just higher fuel and electricity bills. Spiking oil prices mean tighter margins and more cost-cutting. Energy is a problem for governments to solve, not for boardrooms to manage.
That assumption is outdated. A closed Strait of Hormuz, which carries a fifth of the world’s oil supply and a significant share of liquefied natural gas, should be a wake-up call for executives. The consequences of Middle East tensions don’t just stop at gas stations or household utility bills; instead, they quickly percolate through the economy, through higher costs for everything from freight and packaging to food and insurance.
Energy shocks have always been a threat to the broader economy, but energy is now deeply embedded in complex, electricity-dependent business systems. Manufacturers rely on just-in-time supply chains, while retailers need temperature-controlled warehousing and complex logistics networks. Data centers and cloud services need uninterrupted power.
The effects of a disrupted energy market now travel faster and further than in previous crises, which makes energy security as much a business issue as a public policy one.
Originally, governments handled national energy security through diplomatic efforts and emergency planning. Yet in today’s economy, national resilience depends on privately-owned infrastructure and corporate decisions. That blurs the line between state strategy and corporate strategy.
Put another way: Company survival and national resilience are tightly linked.
Markets can adjust in the long term, but a company still needs to make it through short-term disruption. A manufacturer can’t wait a year for gas markets to normalize if key suppliers are shutting down this quarter, and a retailer similarly can’t bear higher freight costs during the peak shopping season.
Many companies know what they spend on electricity and fuel, but far fewer understand exactly how an interruption to energy supplies will spread throughout their business, including how it will affect companies further up or down the supply chain, or even end-users. A company can be greatly exposed to energy volatility even if fuel and electricity make up only a modest share of direct costs.
What should boards and CEOs do now?
First, executives need to treat energy risk the way they now treat cyber risk, as a strategic issue that must be regularly stress-tested. Boards should ask management to model how oil priced at $130 a barrel could hurt the company. What products become unprofitable? Which suppliers fail first? What customers are at risk? The energy stress test needs to become a regular part of corporate risk management.
Second, they should build buffers in areas where disruption will do the most damage. That doesn’t mean building stockpiles or retooling entire supply chains, but it does require identifying critical vulnerabilities. Maybe that means finding alternate sources for key inputs, establishing backup power generation, or setting up longer-term freight contracts. For more strategic sectors, companies may need to work closely with governments, utilities, and key suppliers. The goal isn’t to eliminate risk, but provide enough of a cushion so a temporary shock doesn’t become a business crisis.
These steps seem costly, but so did cybersecurity preparation before ransomware threats became routine. Resilience looks expensive until something happens; after that, it looks indispensable.
The bigger lesson from the Strait of Hormuz crisis is that efficiency may work in a stable world, but falls apart in an unstable one. Outperformance in the next decade won’t come from lower costs, but instead from the ability to keep operating when markets turn volatile.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs ofFortune.
