Retail firms, including British retailer Next and Swedish retailer H&M, have warned that ongoing instability in the Middle East, particularly the Iran war and the effective closure of the Strait of Hormuz, is driving up costs and could lead to price hikes if the conflict continues for months [1]. Next has accounted for £15 million ($20 million) of additional costs likely to arise from the conflict, such as fuel and air freight, assuming the disruption lasts for three months. The company stated that these increased costs will not affect guidance as they have been offset by savings elsewhere, but warned that if costs persist beyond the next three months, they will begin to pass costs through as higher pricing [1]. The Middle East represents about 6% of Next's total turnover [1].
H&M noted that "current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure," but emphasized its relatively low exposure to the region, with about 3% of its stores there and a low share of air freight in its supply chain [1]. H&M CEO Daniel Ervér stated that on a global scale, there is no significant impact on consumer behavior at this point, although consumers have been under high inflationary pressure for a long period and increasing energy prices will have a spillover effect [1].
The Iran war and closure of the Strait of Hormuz have caused oil and gas prices to soar since the first strikes on February 28, upending inflation forecasts in Europe and beyond [1]. Retailers, especially those with discretionary-heavy portfolios, are more likely to be negatively impacted as the war adds uncertainty to an already weakened consumer environment [1]. An extended conflict could increase inflationary pressures and disrupt supply chains, leading to a higher cost base and reduced consumer demand for discretionary items [1].
Companies' price-hike expectations and wages for new hires are among the key inflation indicators that the European Central Bank will monitor, according to its Chief Economist Philip Lane [1].
CONCLUSION
Retailers are facing rising costs due to the Iran war and Middle East instability, with warnings of potential price hikes if the conflict persists. The situation has already impacted inflation forecasts and could further squeeze consumer demand, especially for discretionary items. Market participants should monitor developments closely, as extended instability may have significant inflationary and supply chain repercussions.