There has been no shortage of major global events impacting businesses in recent years. The latest is the war in Iran, a conflict that has had an outsized impact on the global economy. The disruption caused by the Strait of Hormuz being closed for extended periods has caused inevitable issues for the global supply of oil.
Moreover, if conflicts and other disruptions like this are going to become more regular in future, is there anything tangible that businesses and European nations can do to insulate themselves against the issues they cause?
What led to the war in Iran?
The prospect of war in Iran had been building for some time, with the United States concentrating troops and warships in the region. The reasons primarily stem from failed negotiations over Iran ending its nuclear enrichment programme, a request Iran deemed to be hypocritical, given the continuation of similar programmes by U.S. allies.
There are also longer-term concerns. Iran has been considered a destabilising presence in the region by western powers and many of their Middle Eastern allies for some time, including accusations of state-sponsored terrorism going back several decades. The Iranian regime has also come in for broad criticism around human rights abuses, including its treatment of women, protestors, and journalists; a lack of legitimacy in its elections; and widespread internet censorship and blackouts.
The timing of the start of the war has been commented on by many media outlets as being a distraction from Trump’s involvement with the late convicted paedophile Jeffrey Epstein and the slow drip-drip release of the Epstein files. The US president's close relationship with Israel's prime minister Benjamin Netanyahu is cited as being another driving factor of the attacks on Iran's infrastructure in a bid to change Iran's regime.
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But whatever the reasons, with the growing casualties from airstrikes and drones and the devastation of swathes of homes and communities, the widest-reaching consequence of the war so far on a world-wide scale has been a blockade of the Strait of Hormuz, a crucial chokepoint for ships carrying oil and natural gas from the Persian Gulf.
With around 34% of seaborne oil and 19% of natural gas coming from this region, the blockade and attacks on energy infrastructure have caused resource shortages which are driving up energy prices worldwide, and forcing various countries to tap into their emergency stockpiles.
War, what is it good for?
Absolutely nothing, as far as most businesses are concerned. (Unless you're in the business of arms dealing and military drones.) As mentioned above, the chief impact of the war has been on energy supplies, and thus energy prices. While countries with greater energy self-sufficiency have been partly insulated from the effects, almost nobody is immune. The reality of modern-day logistics and the globalisation of commerce means that, when someone in the supply chain is affected, so is everyone else.
Energy prices are perhaps the most direct impact on businesses, but also one of the more variable. European nations with greater energy sovereignty are seeing less of an impact, such as France with its ample nuclear power stations, and the UK with its growing solar and wind power estate. However, the impact is severe enough that the EU is considering enacting emergency measures. Businesses also do not benefit from price caps applied to residential properties in most countries, meaning they often bear the full brunt of price fluctuations.
The impact on logistics is wider-reaching. The transportation sector is still poorly insulated from changes in the energy market, with relatively low penetration of heavy electric goods vehicles due to historic limitations, and inconsistent recharging infrastructure across Europe. The differences in regional energy prices also mean that charging costs can vary significantly between locations, meaning that electric vehicles are not always more efficient than fossil fuel ones.
There has also been more direct disruption due to the war. More traffic has been routed around Africa rather than navigating the Suez canal due to threats in the region, while air traffic has been significantly disrupted by no-fly zones. This has led to a major backlog of air freight as well as commercial aviation, with most aircraft no longer able to fly across swathes of the Middle East or Russia. This has had a particularly big impact on shipments from Asia, which have needed to be delayed, rerouted, or even sourced from elsewhere, all piling the costs on businesses.
How European businesses can cope
Many European companies have already raised prices, because of the war or for other parallel issues. The war has exacerbated existing problems for companies in the tech sector, for instance, where component prices have already shot up over the past year or so due to the explosion of AI.
Some costs will inevitably have to be passed onto consumers. The important thing here is messaging. While most people will be aware that price rises might be necessary, businesses should be transparent about this, and not use it as an excuse to justify rises they may already have wanted to make.
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There is a general suspicion about price rises given the increasing awareness of ‘shrinkflation’, and the ongoing cost of living crisis. When people already feel like their money isn’t going as far as it used to, any price rises need to not only be well substantiated, but also not made permanent unless they need to be. Consumers seeing prices go up as a result of the war will eventually expect them to come back down,
If you haven’t already, this is a good time to look at the makeup of your supply chains, and see whether there are alternative options to source certain goods or components, or alternative transport arrangements that could save money. Sourcing locally for instance may now be comparatively more affordable for certain goods than shipping in previously-cheaper products from elsewhere. This could become a selling point as well as making good financial sense, allowing you to make the best of a bad situation.
Improving business resilience
This is a broader issue than just this particular war. The past six years have seen a range of disruptions to global commerce that would each have been considered exceptional. Wars, pandemics, and extreme weather events unfortunately seem to be becoming more common, meaning that resilience is becoming more important. This makes it imperative that businesses across Europe factor in these supply chain shocks, and try to insulate themselves as much as possible.
For some, this might mean pivoting more drastically away from their current plans. Some business models and product lines may simply not be sustainable in light of global price and supply pressures. Many businesses will need to have a hard look at whether they can guarantee supply at prices that they deem amenable, and have plans in place to wind down production, or see if it’s possible to move it more locally.
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There is a potential upside to all of this, however. UK Prime Minister Keir Starmer has spoken about how the current crises mean the UK needs to move closer to the EU. And the EU itself has spoken about reinforcing its unity and relationships with other world partners in light of the actions taken by the United States, particularly the threats made by Trump against Greenland.
There has also been substantial talk about greater energy and resource sovereignty, including boosting manufacturing of key resources and products such as microchips. All of this presents major opportunities for businesses and entrepreneurs in Europe, both to get in on the ground floor of manufacturing, and benefit from closer trading partnerships.
There isn’t much most businesses can do to affect global conflicts, unless they have the ears of certain leaders. But it is increasingly clear that the once remote prospect of global disruption is increasingly common, and may be the new normal going forwards. If the current crisis hasn’t already encouraged you to look at contingency planning and locally sourcing more goods, now may be the time.
