Industries brace for impact as Gulf crisis continues

In the fog of war that surrounds the status of the Strait of Hormuz, the only certainty is that most of the sea traffic that would normally use it refuses to take the risk. With passage through a globally important waterway effectively paused, the impact on the global economy grows by the day.

How serious that impact might be depends on the duration of the conflict, where your business is and what it does. Different regions and industries will be impacted to different extents. Having said that, if the Strait were to reopen completely tomorrow, the downgrade to global manufacturing prospects would already be sharp. 

If the Strait remains closed for a further six months or longer, the economic impact would intensify significantly. Atradius currently works with two potential conflict scenarios, which are broadly aligned with reference assessments from sources such as Oxford Economics. The remainder of this article examines these two scenarios and their implications across regions and the industrial sectors most exposed to disruption.

The bad and the ugly: two Gulf War scenarios

Our baseline scenario assumes a swift peace deal and an end to the blockade of the Strait of Hormuz in May. Even then, it would take months for shipping traffic to return to normal. In this example, the spike in oil and gas prices peaks in Q2 and falls steadily from there.

By contrast, our downside scenario assumes a six-month closure of the Strait and an escalation in the conflict as negotiations stall. The US intensifies attacks on energy infrastructure, and Iran responds by stepping up strikes on oil and gas facilities around the Gulf. Capacity for fossil fuel extraction in the region suffers permanent damage, and supply chains for other industrial inputs face serious disruption.

Global industrial growth was 3.5% in 2025. Current projections point to growth of around 2.5% this year under the baseline. In our downside scenario, growth slumps to just 1%.

Inflation, interest rates and incomes

In either scenario, the immediate result is higher oil and gas prices, something we’re already seeing. Fossil fuels provide power, but they also provide key ingredients in the downstream production of commodities like fertiliser, chemicals and plastics. As the price of agricultural inputs rises, so does the cost of food. 

The result of rising fuel and food prices is higher inflation, followed by consumers tightening their belts and spending less on manufactured goods and non-essential foodstuffs. If central banks raise interest rates to ease inflationary pressure, borrowing costs rise. That in turn reduces or delays business investment, spreading the pain to sectors like machinery and capital goods.

This vicious circle is reinforced by cooling consumer and business sentiment. Confidence in the economy leaches away if geopolitical uncertainty persists.

A regional disparity in outcomes

Countries in the Middle East will be hit hardest, because of their reliance on both the sale of fossil fuels and energy-intensive and export-oriented sectors like chemicals and metals. Asia Pacific (APAC) countries, with the notable exception of China, will also be severely impacted due to their high consumption of Middle Eastern oil and gas. APAC growth forecasts have already been sharply downgraded.

Europe is another significant consumer of gas from the Gulf, though its energy-intensive sectors don’t have as far to fall. Russia’s invasion of Ukraine created a crisis that has not gone away. For that reason, our baseline scenario sees manufacturing in the eurozone contracting by 0.2% this year from a low base.

The US is not immune to the effects of the war, but it is better insulated than Europe or Asia. In our baseline scenario we expect industrial production to grow by 1.6% in the US this year, thanks to cheaper domestic energy and more gradual price rises.

These are significant impacts, but they would be limited by a speedy resolution to the conflict. If that doesn’t happen, things get much worse. Under our downside scenario, Middle East and Eurozone manufacturing contract by 5.7% and 1.9% respectively. Industrial production growth in the Asia Pacific slows to 2.6%.

Sectors in focus

Wherever they are in the world, energy-intensive industries will be hardest hit by the conflict. The outlook is bleaker still if they also rely on commodities for which oil and gas are a common feedstock.

Transport in the slow lane

The global transport sector is the largest consumer of refined oil products and faces severe disruption. At the moment, we expect global transport/logistics output growth of 2.4% in 2025, 1.0 percentage points lower than forecasts made before the war. Our downside scenario would drag growth down to zero.

Water
Water transport is directly affected by the war in the Gulf, with ships navigating the Strait of Hormuz risking physical attack. The Middle East is a key logistics hub, and maritime freight networks that move goods between Asia and Europe have been badly disrupted. Insurance costs are rising in response to heightened risk. A sustained 50% rise in oil prices - which has recently happened - could push seaborne freight costs up by 15-20%. Asian economies, far from customers in Europe and the US, will be hardest hit.

Our baseline scenario sees global water transport growth slow to 2.2% this year, down from a 3.5% pre-war forecast. The downside scenario sees a 0.6% contraction.

Air
Airlines are already warning of potential fuel shortages as the crucial northern hemisphere holiday period approaches. Cancelling flights to kill demand may be the only option if disruption continues. Meanwhile, rising oil prices are pushing up fuel prices, making airfreight more expensive. 

We expects global air transport growth of 2.4% in 2026, 1.9 percentage points lower than pre-war forecasts. That’s our baseline scenario. Our downside scenario sees a 0.4% contraction.

Land
The land transport sector faces higher fuel costs at an already difficult time. In many advanced markets, fierce competition, labour shortages and high wages are thinning margins. In our baseline scenario, growth - at 2.3% - would be 0.9 percentage points lower than forecast in February. In our downside scenario, growth would disappear entirely, replaced by a 0.1% contraction.

Chemicals are highly exposed

Chemicals is an energy-intensive sector, and it also relies on oil and gas for key feedstocks. For example, the Gulf region supplies about half of the world’s ethylene glycol needs and almost 40% of its methanol requirement, both essential for the production of plastics and industrial chemicals. Through these chemicals, high oil and gas prices feed into manufacturing costs. Plastics manufacturers, especially in Asia, are already facing delivery disruption.

In our baseline scenario, global chemicals output growth will be 0.6% this year, 1.6 percentage points lower compared with pre-war expectations. The Middle East will be worst affected (-3.7%), followed by Japan (-4.8%) and the Eurozone (-2.4%). Rising gas prices are compounding Europe’s long-standing competitiveness problem. In the US, gas price rises have been more modest, strengthening the country’s competitiveness in chemicals. Chinese producers are turning increasingly to coal.      

Metals under stress

Electricity costs account for 30-40% of the total cost of aluminium production. An insatiable appetite for energy means global basic metals production growth is expected to slow to 1.6% this year, 1.2 percentage points lower than forecast in February. Predictably, the Middle East will be hardest hit, with a huge 13% output contraction in 2026.

Within metals, there are areas of particular concern. The Gulf region produces 10% of global aluminium output, and much is shipped through the Strait of Hormuz. Losing that supply would create a significant global price shock. Even if the war were to end quickly, restarting idled production can take months.

Nickel and copper producers in Asia and Africa are also likely to be hit due to the importance of sulphur in the refining process. The Middle East accounts for 24% of global sulphur production and around 50% of the seaborne sulphur trade. Indonesian nickel refiners are most exposed, relying on the Middle East for 75% of their sulphur supply.

Rising energy costs are only adding to the pressures on metal producers, especially in gas-hungry Europe. As a result, downstream industries like automotive, aerospace, construction and packaging will all see input costs rise. 

Agriculture and food face growing pains

In March, prices for fertiliser surged by 26%. The prices of urea and ammonia have risen by 65% and 40% respectively since the beginning of hostilities. All of these materials are used to increase crop yields, and the Middle East is responsible for about 25% of global sulphur and around 23% of global urea and anhydrous ammonia. 

Higher fertiliser prices will feed through to higher food prices later this year. In addition, higher energy prices impact every step in food production, from planting and harvesting to processing, storage and transport. Taken together, aggregate world commodity food prices could increase by 8.5% this year and 3.8% in 2027. This compares to pre-conflict expectations of 0.7% and 2.5%. Retail prices may rise even more quickly.

Hope for the best, prepare for the worst

Baselines scenarios suggest significant but limited economic impact. A prolonged war of six months or more could see physical shortages of natural gas, diesel and jet fuel, with the possibility of rationing. A scarcity of key commodities would impact a range of downstream industries, from medical device manufacture to automotive, construction and packaging. In our downside scenario, no sector of the economy is likely to emerge unscathed. 

We're not there yet. Beneath the public bluster, it seems that both sides want a quick end to the conflict. The economic impacts get worse with each passing week, and polls show that the US public has little appetite for a drawn-out conflict. Still, while serious obstacles to a lasting peace deal remain, cross-border businesses would be wise to prepare for the escalating impacts our downside scenario predicts, while hoping our baseline scenario is as bad as things get. 

Trade cannot stop. We continue to operate across the Middle East, providing coverage and support for our customers and partners. Developments in the region are monitored closely through a dedicated task force, allowing decisions to be taken on the basis of scenario‑driven assessments rather than broad or generic measures. Company‑specific fundamentals vary widely, and our risk decisions fully reflect differences in financial strength, business models and risk‑mitigation capabilities.

Atradius has successfully managed many complex situations in recent years. Our experience shows that maintaining a rigorous approach and working closely with partners, brokers and customers is the most effective way to navigate periods of uncertainty.

To explore how to strengthen your own credit risk strategy, get in touch with us and see how we can help you stay ahead.