The impact of conflict in the Middle East is being felt far beyond the region itself. While geopolitical crises often begin as local events, businesses worldwide are discovering once more how quickly disruption travels through supply chains, investment decisions and workforce wellbeing.
Insights from finance leaders and business advisers operating across manufacturing, logistics, development and advisory services reveal a common picture: organisations are adapting, but uncertainty is becoming a business risk in its own right.
‘Prices go up like a rocket and down like a feather’
ACCA’s chief economist Jonathan Ashworth recently hosted a roundtable for international business and finance leaders and advisers to discuss the impacts they were seeing in their own businesses and regions. Three themes stood out: rising supply costs, changing demand and confidence, and the human impact of disrupted operations.
Input cost surge
For manufacturers and logistics operators, conflict-related disruption quickly translates into higher costs. Andrew Elsby-Smith FCCA, CFO of flooring manufacturer Amtico International, says his company experienced immediate inflationary pressure because PVC – a key oil-based raw material – surged in price.
‘As with most crises, prices go up like a rocket and down like a feather,’ he says. ‘It took a day for prices to shoot up. As raw materials account for a significant proportion of product costs for the business, this created immediate margin pressure. Material previously sourced in mainland Europe is now being bought more economically from the Far East, despite the higher shipping costs.’
Energy prices are another concern. While hedging electricity and gas contracts has created breathing space, longer-term costs remain uncertain.
‘The biggest effect we have seen is psychological’
With this in mind, Amtico has reassessed its sourcing decisions and supply-chain design. Material previously sourced in Europe is now being bought from the Taiwan Region, despite the higher shipping costs.
‘We’ve relooked at our supply chain,’ Elsby-Smith says. ‘We’ve also reassessed what we manufacture locally versus what we buy from Asia.’
Operational risk
The logistics sector is seeing similar pressures emerge in different forms. Dubai-based Arise Ports & Logistics chief operating officer Ebrima Sawaneh FCCA, who works in bulk port and mineral logistics in Africa, says freight costs, insurance pricing and vessel availability are becoming major concerns.
‘The challenge for us is often the second-order effect,’ he says. ‘At the first level we may not feel it, but as the conflict continues, energy prices rise and that affects shipping costs and vessel operations.’
His organisation has responded by stress-testing operational risks: reviewing spare-parts sourcing, assessing fuel exposure and ensuring liquidity facilities remain available. ‘Could delays affect our spare parts? Could vessel availability affect customer commitments? Those are the questions we are mapping out,’ he says.
Sawaneh also highlights a wider global implication. Fertiliser supply chains, heavily linked to the Middle East, could create food-security challenges in parts of Africa if disruption persists. ‘If fertiliser is not supplied on time, the second-order effect could become a food-security issue,’ he warns.
Fragile confidence
According to the roundtable participants, the direct commercial effects of the conflict could vary widely by sector. Amtico has not seen a general collapse in customer demand – in fact, orders have remained strong despite project delays in affected markets. ‘We haven’t really seen a big knock in confidence yet that’s played into our order book,’ says Elsby-Smith.
But advisory specialist Mohammad Kashif Javaid FCCA, the Pakistan-based CEO of ACS Synergy, argues that falling confidence could become the biggest business threat. ‘The biggest effect we have seen is psychological,’ he says. ‘This is leading to the erosion of confidence and the holding back of business ambition.’
‘The issue is having enough visibility and flexibility to react when conditions actually change’
Businesses initially assume crises will be temporary, he explains. But when disruption persists, survival behaviours begin replacing growth strategies. ‘We are spending much more time with clients on scenario modelling and providing various scenarios simply to survive, whether to cut costs or diversify revenue streams,’ he says.
Government spending freezes in some economies are adding another layer of pressure. ‘Major projects are either being delayed, frozen or pushed back,’ Javaid says. ‘Investment decisions are being held back.’
In-house resource
These pressures have become particularly acute for SMEs, argues Eric Buchot, head of the Iraq country programme for the International Trade Centre (a joint agency of the UN and WTO), which helps SMEs in developing countries benefit from international trade. Buchot argues that smaller businesses are facing a fundamentally different challenge from larger corporations.
‘Businesses can adapt to hardship,’ he says. ‘What is much harder to manage is unpredictability.’ According to Buchot, SMEs often lack dedicated risk teams, forecasting resources and financial buffers while rising insurance costs, shifting transport routes and sudden policy changes create operating conditions that are difficult to plan around.
‘Constant uncertainty normalises low ambition and economic stagnation’
‘The issue is not necessarily producing sophisticated scenarios,’ he says. ‘The issue is having enough visibility and flexibility to react when conditions actually change.’
Instead of asking how they could grow, businesses have started asking about how they survive for the next six months, Buchot says. ‘Repeated shocks slowly erode productive capacity. Businesses survive but they stop investing, innovating and creating jobs.
‘The real risk is not only that conflict destroys businesses directly. It is constant uncertainty that normalises low ambition, short-term thinking and economic stagnation.’
Individual resilience
However, behind supply chains and investment models sits another issue: people. Several participants highlighted how conflict changed the experience of work itself.
Elsby-Smith says maintaining close contact with colleagues in affected areas is important. ‘I was in regular contact with the team anyway but even more so during the initial days,’ he says.
‘Permanent crisis management does not help businesses develop or scale’
Sawaneh temporarily relocated his family during the early weeks of conflict. ‘People were worried,’ he says. ‘My family and I had to leave the country for a period.’ For Buchot, resilience should not be romanticised. ‘Operating permanently in crisis management mode is not sustainable. It does not help businesses develop or scale.’
Despite all these challenges, businesses are adapting, diversifying suppliers, strengthening liquidity, improving market intelligence and investing in flexibility. SMEs are attempting to increase the resilience of their networks and looking for greater visibility rather than perfect forecasts, while governments are also being pushed toward longer-term trade and economic reforms.
More information
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