Geopolitical risks and value chain costs in Egypt and Saudi Arabia’s milling industry: the moderating effect of supply chain structure

Abstract This study empirically investigates how heightened geopolitical risks affect the value chain costs of upstream and downstream activities in Egyptian and Saudi milling firms from 2020 to 2025, and the moderating effect of supply chain structure. Grounded in resource dependency theory, this study analyzes quarterly operational data from the World Bank, FAO, OPEC, UNCTAD, and audited reports from the Tadawul and the Egyptian Stock Exchange. A fixed-effects regression model was used to test the effect of geopolitical risks on the value chain costs of flour products; a unit-root test was also applied to assess the variables' stationarity over the period. Geopolitical risks, including political instability and Red Sea Houthi attacks, significantly raise the value chain costs, especially in countries that outsource critical resources from Russia and Ukraine. Economic factors, such as wheat/fuel price volatility, exchange rate fluctuations, and inflation, further increase these costs. These results support the resource dependency lens, which holds that political instability restricts access to critical resources and further inflates costs. In addition, we conclude that countries' reliance on major suppliers poses additional risks; however, their cost implications vary depending on the country's bargaining power, domestic production, and supply chain resilience. Country-specific policies during periods of uncertainty are crucial in maintaining economic resilience and protecting strategic industries, such as the flour industry. The results indicated that subsidies and privatization are essential strategies for reducing costs and improving supply chain resilience. Policymakers should adopt flexible regulatory frameworks that address local and global economic pressures, encourage supply chain reconfiguration, and enhance overall resilience.