Conflict, Supply Chains, and the Long Game: What Middle East Instability Means for Global Energy Markets

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By: George N. Koutsonicolis

When conflict intensifies in the Middle East, a region that accounts for a disproportionate share of the world’s proven oil reserves and critical maritime infrastructure, the effects do not stay contained. They move through supply chains, price indexes, and balance sheets across the global economy. Four dimensions of the current disruption are worth examining closely.

The Inflationary Tax

Oil and natural gas are cost inputs that underpin transportation, manufacturing, agriculture, and consumer goods at virtually every level of the supply chain. When prices rise sharply and remain elevated, that cost increase distributes itself across the broader economy, functioning in effect as a tax on consumption and economic activity.

If there is a material, long-term restriction of production and supply, it will ultimately filter through the global economy driving up inflationary pressures and effectively acting as an inflationary tax.

The primary concern is not the initial price spike. The more consequential scenario is a sustained restriction of supply resulting from escalation: a broadening of the conflict’s geography, damage to production infrastructure, or the prolonged closure of critical maritime corridors.

Infrastructure Vulnerability and the Strait of Hormuz

Roughly 20 to 25 percent of the world’s oil and natural gas normally flows through the Strait of Hormuz. When maritime transportation through that corridor is severely disrupted, the resulting supply shock is difficult to offset in the near term. The infrastructure required to reroute those volumes at scale simply does not exist in sufficient quantity.

Our modern global energy supply chain relies on highly interconnected networks, leaving us exposed to material infrastructure vulnerabilities.

What this episode illustrates is a long-underappreciated tension: the optimization of global energy logistics around efficiency and low-cost routing has created a system that performs well under normal conditions and is more exposed when those conditions change.

The ‘Balkanization’ of Energy Supply Chains

Energy security is becoming a more prominent strategic objective for governments across the developed world, and that objective is difficult to reconcile with dependence on supply networks running through politically unstable regions. Looking ahead, it is reasonable to expect more countries to prioritize secure, politically aligned sources of supply over cost optimization alone.

Countries will increasingly prioritize security of supply from politically aligned partners over reliance on a global network, which is expected to drive new capital into politically stable regions and generate significant opportunities for U.S. shale producers as well as longer-term projects such as deep-water drilling platforms.

The Energy Transition: A Reality Check

Petroleum is not simply fuel. It is a foundational input for plastics, pharmaceuticals, fertilizers, lubricants, and many other materials that are integral to modern production. Reducing dependence on oil and gas is a long-term undertaking by any reasonable measure, and the current instability makes rapid transition more difficult in the near term.

While instability in the Middle East strengthens the long-term thesis for diversifying our energy assets, in the immediate term it reinforces our reliance on oil and gas. It will be incredibly challenging to decarbonize the global economy quickly because petroleum isn’t just a fuel source; it is a foundational base for the everyday materials we rely on.

Investment in renewables and alternative energy infrastructure remains relevant. But the coexistence of fossil fuel dependence and decarbonization investment is likely to persist for longer than some projections have assumed, and energy strategy must account for that reality.

Looking Ahead: What the Crisis Signals for the Future of Energy

Some of the longer-term consequences of this period are beginning to take shape in capital allocation and policy. Final investment decisions for new LNG projects have increased notably, with roughly 300 billion cubic meters of new annual export capacity scheduled to come online by 2030, a projected 50 percent increase in available global supply. Approximately half of that capacity is being developed in the United States, consistent with a broader trend of energy importers seeking supply from more geopolitically stable sources. The EU and Japan have each indicated plans for significant U.S. LNG purchases as part of ongoing trade discussions, reflecting how energy supply has become a more prominent factor in bilateral economic relationships.

The broader investment landscape points to a market that is increasingly managing two tracks in parallel. A recent survey of senior executives actively investing in energy transition assets found that 72 percent report accelerating investment in clean energy, while 75 percent continue to invest in fossil fuels. The data suggests that rather than a clean shift from one to the other, the near-term outlook involves sustained activity across both. For operators, investors, and lenders, the practical question is how to evaluate and balance exposure across those tracks as geopolitical risk, policy direction, and demand conditions continue to evolve.

The Bottom Line

The conflict in the Middle East has exposed real vulnerabilities in supply chain infrastructure, geopolitical assumptions, and transition timelines. For investors, lenders, and operators across energy-intensive industries, this is a reasonable moment to reassess supply security and infrastructure risk considering conditions as they exist today.

George N. Koutsonicolis is a Senior Managing Director at SOLIC Capital Advisors, where he specializes in capital restructuring, financial advisory, and mergers and acquisitions. He brings cross-sector advisory experience spanning energy and infrastructure, industrials and manufacturing, healthcare, financial services, and consumer products. Earlier in his career, he held roles in energy and utilities investment banking at Scotia Capital and structured energy derivatives and commodity electricity transactions at ComEd. He holds an MBA from the University of Chicago Booth School of Business and a BS in Chemistry from Loyola University of Chicago, and is a Certified Insolvency and Restructuring Advisor (CIRA).

Navigating Turbulent Waters: Shoring Up Against Financial Distress and M&A

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By Raoul Nowitz, Senior Managing Director of Restructuring and Distressed Asset Support Services, SOLIC Capital Advisors

The senior living industry finds itself facing continued financial headwinds in 2024, the roots of which are multifaceted:

  • Occupancy: While occupancy trends have improved favorably relative to levels last seen pre-pandemic in select markets, the “aging in place” trend started by the pandemic continues to affect resident admissions and lease-up trajectory of newer facilities, hampering revenue generation and resulting in higher concessions packages in many instances. Competing facilities and an oversupply of beds in several markets are also driving the pace of occupancy gains.
  • Labor Costs: Rising labor costs fueled by a nationwide staffing shortage are squeezing profit margins. While contraction in agency cost usage is being realized, inflationary factors are resulting in many struggling to compete with higher wages being offered in other healthcare sectors, leading to staffing turnover and stickiness of heightened labor costs.
  • Aging Facilities: The industry faces infrastructure obsolescence and meeting significant deferred capex requirements as two out of every three senior housing facilities was built prior to 2000. Updating these locations requires meaningful capital investment. Many of the identified capital needs are deemed unavoidable, as well as an element of spending viewed as necessary in competing with new “shiny pennies” that have entered many markets.
  • Maturing Debt: With around $10-$14 billion of debt in the senior housing sector scheduled to mature in the next 24 months, the industry is feeling the crunch. Many credit facilities were entered into with floating rate debt creating added liquidity and debt service coverage challenges for borrowers. In addition, with many traditional lending sources sitting on the sidelines on new originations in the sector while they address other troubled portfolio credits, bridge loan structures are being seen as an attractive alternative for borrowers on select new investments being made.

The cliff is coming.

M&A May Be the Lifeline
We expect these challenges to translate into a rise in mergers and acquisitions (M&A) activity. Stronger operators and those on the sidelines with ample capital reserves may see opportunities to acquire distressed facilities, expand their market share and density, and benefit from economies of scale. Sellers are becoming more realistic about the pricing of sector assets, and financing markets are more accommodating than last year, although rates remain high. We are seeing stabilized assets generating greater lender interest, notwithstanding regional banks being cautious in returning to the lending market with the same level of deal appetite.

If your company is considering purchasing a distressed property there are some important considerations. This includes a comprehensive property assessment – not just physical condition, but also financial health, resident mix, and regulatory compliance. Buyers must ensure the target facility aligns with their long-term strategy and diligence in a credible business plan in justifying a high degree of likelihood that success in turning around value-add and repositioning opportunities is likely to yield a higher level of execution success.

On the flip side, facilities facing financial distress need to be prepared for various restructuring options. While M&A might be a solution, it’s not the only one. Bankruptcy may be necessary in severe cases. Here are some key considerations for facilities undergoing a restructuring process – be it a purchase, merger, or bankruptcy:

  • Positive Occupancy and Rental Rate Trends: Evaluate factors like projected rental rate growth across care levels, potential occupancy increases, and the possibility of reducing aggressive move-in concessions.
  • State Legislation Impacts in Addressing Reimbursement Needs: Assess the potential impact of pending state legislation that could affect Medicaid reimbursement rates.
  • Improving in Operational Fundamentals: Focus on achieving improved operating fundamentals including expense management (especially staffing, insurance, supplies, and property taxes) amidst heightened inflation.
  • Liquidity and Lender Support in Executing the Turnaround Plan: Ensure sufficient liquidity to execute turnaround plans, and work with lenders to gain necessary support in the face of increased debt costs, elevated leverage levels, and potential debt covenant violations.
  • Addressing Capital Needs in Providing Runway Through to Execution: Secure the capital necessary to address any near-term deferred capital expenditure (capex) requirements.
  • Value Creation: Analyze how current and projected cap rate trends could influence the facility’s long-term value.

Looking Forward:

The senior living industry undoubtedly faces a period of financial turbulence. However, this can be a catalyst for positive change. M&A activity could reshape the sector while restructuring efforts can create stronger, more sustainable facilities. For financially strong facilities, M&A activity presents a chance for growth. For those facing distress, clear-headed planning and a focus on resident care can provide a path towards a secure future. The ability to weather the current storm will depend on a combination of financial savvy, operational efficiency, and unwavering commitment to resident well-being.

About the Author

Raoul Nowitz has over 25 years of professional experience and serves as Senior Managing Director of Restructuring and Distressed Asset Support Services. Mr. Nowitz’s expertise includes astute analytics, detailed assessment, and creative resolution planning and implementation support to address complex challenges facing the firm’s clients. Before joining SOLIC, Mr. Nowitz was a Director with Navigant Capital Advisors. He previously served in a variety of senior professional roles at Macquarie Capital, Giuliani Capital Advisors and Ernst & Young Corporate Finance (both predecessor firms of Macquarie Capital), as well as an associate at Grant Thornton International’s Accounting, Audit & Tax Division. Mr. Nowitz received his Masters of Business Administration from the Goizueta Business School of Emory University, where he qualified for Beta Gamma Sigma recognition for Honors achievement in business study, and received his Bachelor of Commerce and Postgraduate Bachelor of Accounting from the University of the Witwatersrand, South Africa.