Gulf manufacturers re-evaluate supply chains as resilience becomes a financial priority
Repeated disruptions to Gulf trade routes due to the conflict are pushing UAE manufacturers to reassess sourcing, inventory and working capital. Concurrently, banks are adopting a more strategic role in helping companies absorb the cost associated with these disruptions
For UAE manufacturers, supply-chain resilience has stopped being purely an operational question.
A succession of shocks, from the pandemic to shipping route closures, has changed how companies decide where to source, how much inventory to carry, and how quickly that inventory needs to convert back into cash.
The shift has built up gradually. COVID-19 pandemic exposed the risk of overly concentrated global supply chains, container shortages in 2022 added further strain, and the Red Sea crisis from late 2023 extended delivery times and increased freight costs across the region.
The World Bank estimated that Red Sea and Gulf ports saw an average trade volume decline of 8% in the year to October 2024, compared with pre-crisis levels.
More recently, heightened uncertainty at the Strait of Hormuz, the narrow channel between the Gulf and the Arabian Sea through which much of the region’s oil and gas exports normally pass, has added a further, more acute layer of pressure, reinforcing the case for alternative routes and sources of supply.
The months since May have also highlighted the importance of domestic demand. Continued public investment and resilient local spending kept the UAE’s non-oil economy expanding through the disruption’s most acute phase, while new orders have since begun to recover, driven increasingly by UAE customers rather than overseas markets.
That shift in the customer base is becoming more structural. More UAE manufacturers are now selling most of their output domestically and across the GCC, where shorter delivery times, duty-free access under the Gulf customs union, with some exceptions including Saudi Arabia, and growing industrial and consumer demand provide a more predictable market for locally produced goods. Selling closer to home can also shorten the cash conversion cycle, much as local sourcing does, by reducing the time between production, delivery and payment.
For manufacturers, the result is a closer link between supply-chain decisions and financial planning. “Resilience is not a competitive advantage; it is now important for every client to build in an understanding of supply-chain disruption,” says Umar Khan, senior vice-president, unit manager, services and manufacturing at Mashreq.
From just-in-time to just-in-case
The clearest change has been a reassessment of the just-in-time model that manufacturers relied on for decades, in which companies kept minimal stock on hand and timed deliveries closely to keep down the cost of holding inventory.
Companies are now holding larger safety stocks, weighing up dual sourcing, or using more than one supplier for the same component so production does not depend on a single source, and expanding warehousing capacity. The goal is not simply “more inventory,” but to build greater flexibility to keep production running when a supplier, port or shipping route becomes unavailable.
Khan says the shift is visible across the entire import-export cycle: delivery times, shipping diversions, freight rates and nearshoring, or moving sourcing and production closer to the markets a company sells into, have moved from being logistics or treasury concerns to strategic questions for senior management.
That has extended to the routes themselves. Manufacturers that once relied on a single port are increasingly weighing combinations of sea, road and air freight, running a full cost-benefit analysis on each option rather than defaulting to the cheapest or fastest route in normal conditions. Government infrastructure is giving them more of those options. For instance, Abu Dhabi National Oil Company (ADNOC) is building a pipeline to carry crude overland from Abu Dhabi to the port of Fujairah on the Gulf of Oman, reducing reliance on the Strait of Hormuz for exports.
Etihad Rail, the UAE’s national freight railway, has been carrying cargo since 2023 and now connects all seven emirates, along with Khalifa Port, Jebel Ali Port and key industrial zones, giving manufacturers an overland alternative to congested ports and roads, with onward links towards Saudi Arabia and Oman as the wider GCC rail network develops.
Resilience comes at a balance-sheet cost
That flexibility is not free.
Holding additional inventory ties up capital. Longer transit times stretch the period between paying suppliers and receiving goods. Delayed exports push out receivables, while higher freight, energy and insurance costs add further pressure to margins.
For manufacturers, these changes show up directly in the cash conversion cycle, the length of time it takes a company to turn cash spent on raw materials into cash collected from customers.
“As there are delays in the overall end-to-end from raw material to finished goods, your days inventory, days receivable and days payable all change. That has an impact and it can result even in margin calls,” Khan says. Those three measures- how long stock sits before it is sold, how long customers take to pay, and how long a company can hold off paying its own suppliers- together determine how much cash a business needs on hand at any given time. A margin call is a demand from a lender or counterparty for extra cash or collateral when a financial position has moved against a company, and it can happen quickly if reserves are already stretched.
This is where supply-chain disruption becomes a banking issue: a company can be profitable on paper and still come under pressure if too much cash is tied up in inventory or unpaid invoices.
So far, most manufacturers have absorbed that pressure rather than sought emergency facilities. Khan says clients that lived through the Red Sea crisis, the pandemic and the container shortages of 2022 have generally maintained sufficient inventories through the latest disruption. Where they have approached banks, it has typically been to optimise the cash conversion cycle, whether through supply-chain finance, in which a bank pays a company’s suppliers promptly at a discount and is repaid later by the buyer, receivables finance, which lets a company borrow against invoices it is still waiting to be paid, or other inventory management solutions, rather than to request extensions.
The shift is also changing how manufacturers think about treasury. Treasury teams have traditionally been seen as a back-office function, managing payments and cash balances.
“A lot of clients used to run their treasury as a cost centre, and now they’ve realised running their treasury as a profit centre, incorporating efficiencies,” Khan says. That extends to working-capital optimisation, decisions on long- and short-term debt, and how much currency and commodity risk to hedge, or protect against, using financial contracts that lock in a price or exchange rate in advance, whether on the energy consumed in manufacturing or the freight costs tied to exports.
For manufacturers with subsidiaries across multiple markets, it also means assessing the overall risk profile of economic exposures and building natural hedges, offsetting income and costs in the same currency across different parts of the business, rather than relying solely on financial contracts.
Localisation changes the equation
Localisation adds a financial dimension to the UAE’s drive to strengthen industrial resilience. Through its industrial policy, the government is creating clearer demand signals for domestic manufacturers.
Make it in the Emirates (MIITE), for instance, connects manufacturers with major buyers, including state-owned companies, and identifies procurement opportunities for locally produced goods. These are set to reach AED180bn, covering more than 5,000 products targeted for localisation.
The programme forms part of Operation 300bn, the UAE’s 10-year strategy to expand domestic manufacturing capacity and raise the industrial sector’s contribution to GDP to AED 300bn by 2031.
Industrial exports reached AED262bn in 2025, double their 2020 level, according to the Ministry of Industry and Advanced Technology (MoIAT), while the National In-Country Value programme has redirected more than AED473bn in procurement spending into the national economy.
Financing is also being scaled alongside this policy push. At MIITE, the government announced AED171bn in aggregate deals, including AED48.5bn in investments, while MoIAT secured AED18bn in competitive financing to support manufacturers in expanding production, adopting advanced technologies and strengthening supply chains.
Mashreq committed AED10bn over five years, alongside AED2bn from Dubai Islamic Bank and AED6bn from Emirates Development Bank through its partnership with MoIAT. Separately, the UAE Cabinet approved a AED1bn National Industrial Resilience Fund to support local production and strategic reserves.
For manufacturers, the shift towards local sourcing can also improve working-capital efficiency by shortening supply chains. “If a UAE manufacturer is sourcing components locally from Ras Al Khaimah versus getting them from Asia, the payment cycle will compress, because there’s shipping that comes all the way from Asia versus just coming from Ras Al Khaimah,” Khan says.
Shorter lead times mean less capital tied up in goods moving through international supply chains, making localisation a consideration not only for supply security but also for cash-flow management.
Banks move closer to the supply chain
As manufacturers rethink their operating models, banks are being drawn further into decisions that once sat purely with procurement or logistics teams.
Mashreq runs impact analysis with clients on a monthly basis to track exposure and refine solutions as conditions change. It also works with clients in free zones such as Jebel Ali Free Zone (JAFZA), one of the region’s largest trade and logistics hubs, alongside partners including ports operator DP World, on warehousing and transit.
“That’s where the banks also come in, to hedge and to look at it from the perspective of your liquidity, the returns you are getting on your cash, the notional pooling, looking at surpluses and overdrawn positions, aggregating them and giving the maximum benefit and efficiency to your clients,” Khan says.
Notional pooling allows a company to combine the cash balances of multiple accounts, sometimes across different subsidiaries or currencies, so that interest is calculated as if the funds sat in one account, without the cash physically having to move; it can help a group with surplus cash in one entity and an overdrawn account in another cut its overall borrowing costs.
Infrastructure investment is part of the picture too, particularly around digitalisation and insurance. “It’s going to be more on warehousing or localising inventory. These are key in infrastructure investment, because digitalisation is also very important to better understand inventory, because larger inventory means larger inventory management, and a different procurement route means smarter procurement methodologies,” Khan says. Insurance costs are also shifting: war-risk and cargo insurance for vessels transiting Gulf waters now carries an added premium that Khan expects to persist, prompting manufacturers to rethink where and how they procure.
Khan expects the pace of localisation to accelerate rather than plateau. “Localisation will need to fasten, purely because the rate at which we are growing in the manufacturing segment in this country, this is the next step of maturity in the trajectory,” he says.
For UAE manufacturers, the direction of travel is towards optionality: more than one supplier, more than one route, and enough working-capital flexibility to respond when conditions change again. For banks, that means a role that extends beyond providing liquidity, linking trade finance, or short-term funding and guarantees that bridge the gap between shipping goods and being paid for them, with working capital and treasury solutions to help manufacturers keep production running while the region’s industrial base continues to scale.
