The UK Sectors Most Threatened by Middle East Conflict

We don’t have to go too far back in time to see how international conflicts can have an impact on UK businesses. The Russian invasion of Ukraine saw oil prices soar, and embargoes placed on trading with the aggressor, which in turn, had a ripple effect across several industries.

In fact, we had a client that had to fold as a result of this development. Unfortunately for this seed exporter, their main client was a Russian company. Finding themselves overexposed to risk as a result, the embargo effectively pulled the plug on their business overnight.

Could we see a glut of company closures as a result of this latest conflict? Perhaps, though it’s more likely that it will instead act as another ‘nail in the coffin’ for businesses already struggling. Companies in certain industries will likely be impacted more severely than others, however.

So which sectors will find things particularly difficult?

Haulage/shipping

A growing number of UK haulage firms have found themselves financially distressed over recent years, with multiple companies entering liquidation last year. Rising costs, cash flows stretched by late payments, and thin margins saw even long-standing businesses such as B Taylor & Sons, W. Harrison & Sons, and Joyce European Logistics succumb to administration or closure.

The hike in fuel prices, then, is unlikely to be absorbed easily by surviving hauliers feeling the pinch.

In an interview with the BBC, Marshalls Transport owner, George Simpson, explained that when it comes to operating costs “in the haulage industry it’s a third in fuel, a third in wages and a third in maintenance and overall costs”.

In the short term, expect to see multiple products rise in price as hauliers pass the cost on to their customers.

Aviation

Another sector that depends on huge amounts of fuel is the aviation industry. The Gulf provides around half of all the jet fuel used in Europe.

Not only will the operating costs of airlines increase significantly as a result of this, but they’ll also be forced to use more fuel as their planes are rerouted around conflict zones. Flights between the UK and Australia or Asia will be looking at a further hour or more of flight time at least.

Again, this extra cost is likely to be reflected in higher air fares for the end user. Airlines will feel the difference though. Shares in British Airways owner, IAG, fell 17% just one week after news of the conflict broke.

Tourism

Directly feeling the effects of the impact on the aviation sector, the tourism industry will be disrupted by flight cancellations, higher air fares, and a smaller offering of safe countries to visit.

Restricted air travel from affluent areas like Doha and Dubai will also see high-spending visitors unable to visit the UK.

Construction

The price of steel, cement, bricks, and iron has historically been highly sensitive to energy costs. This threatens to push operating costs much higher in a sector with notoriously stretched cash flows.

With the construction industry already boasting one of the worst records for corporate insolvencies over the last few years, this news is far from welcome. On top of this, it’s estimated that the UK construction industry uses around 2.5 million tonnes of diesel each year.

That’s not all. The Middle East is a major global supplier of aluminium and prices have already jumped up as exporting through the Strait of Hormuz is disrupted.

To add yet further problems into the mix, shipping delays to materials such as timber, steel and electrical equipment will undoubtedly cause issues. Vessels will have to add between 10-14 days extra for journeys as they’re forced to use the Cape of Good Hope in an attempt to avoid the Red Sea.

Looking at all of these issues, it’s almost certain that we’ll see several construction firms fold as a result. Should the conflict raise the price of many household items too, we may even see a slowdown in new home demand as potential buyers struggle to afford a move.

Are you worried how the conflict could affect your business?

UK businesses have had to contend with setback after setback over the last few years. Global pandemics, cost-of-living-crises, and energy price hikes have all contributed to making operating a business more difficult than it has been for some time.

If you’re concerned that your company will struggle to absorb these and other costs in the future, you need to seek help before it becomes an issue.

We have specialists on hand that can help you to facilitate turnaround strategies, sell your business, or close down your company depending on the best route available to you. Call us on 0808 280 6032, or email advice@forbesburton.com for a free consultation.