How the Iran war is pushing up costs for SMEs

Four weeks ago, the US and Israel launched strikes on Iran. Iran retaliated across the Middle East, and the Strait of Hormuz, the narrow sea lane carrying roughly 20% of global oil, effectively closed. 

And its impact is already being felt globally. Diesel is up 20%. Wholesale gas has surged 75%. Supplier costs are climbing. The government support announced so far is almost entirely aimed at households, rather than businesses. 

Matt Hunt, co-founder of Worthing-based The Protein Ball Co, employs 40 people at his manufacturing facility and has already taken swift action to mitigate the impact of the war. 

Matt said:

“We paid in full for a container of ingredients that’s been stuck in Dubai for three weeks now. At the same time, we’re deliberately overstocking and holding around two months’ worth as there is definitely trouble ahead... 

“We source ingredients from all over the world like UAE, Argentina, Brazil, Asia, Europe and moving goods is complex at the best of times. Right now, it genuinely feels like a sci-fi film where global supply chains are starting to break down.” 

Matt thinks costs will rise by a minimum of 15%. He added:

“Honestly, I can’t even bring myself to put a ceiling on it right now but could be a lot higher.” 

The firm that exports to 14 countries has already organised additional funding:

“We’ve put multiple safety nets in place in past two weeks – an overdraft, Funding Circle loan and bank facilities at the ready.  

“We’re also watching our P&L daily. This is uncharted territory, so as a small business, we’re learning, hoping and trying our best to make it work.” 

The scale of the hit 

According to the House of Commons Library, citing the OECD's latest forecast, the UK has received the steepest economic downgrade of any G7 country. Growth for 2026 has been cut to 0.7%, down from 1.2% in December. The inflation forecast has jumped to 4%.

For small businesses, that combination of slower growth and rising prices is the worst of both worlds. Fewer customers spending, and everything costing more. 

The same Commons Library briefing puts concrete figures on what has happened since the conflict began. Between 28 February and 23 March, petrol rose 14p a litre and diesel rose 29p a litre.

UK wholesale gas prices climbed roughly 75% in the same period. The International Energy Agency estimates that around 20 million barrels of oil a day have been disrupted by the near-closure of the Strait. 

The March PMI fell to a six-month low of 51, with businesses reporting their steepest cost increases in over three years.

How does this affect your business? 

If you run vehicles, heat premises, or rely on deliveries, your energy costs have jumped overnight. Unlike households, your bills are not protected by the energy price cap.  

Some businesses face standing charge increases of 40% from next week.

The global fertiliser supply chain has contracted by roughly a third, and the NFU has warned food prices will follow. If you depend on raw materials, packaging or food ingredients, your suppliers will pass that on.

Your customers are feeling it too. Petrol is eating into household budgets, and mortgage rates are rising. The Bank of England has shelved the rate cuts businesses were counting on, holding at 3.75%.

Borrowing is no cheaper either. Before the war, a spring rate cut looked likely. That is gone. Some economists now think hikes are possible. 

When everyone's cash flow tightens, late payment gets worse. If you already chase invoices, expect it to get harder over the coming weeks. 

What the government has done 

The measures announced so far are aimed at households. The government has capped energy bills until the end of June, saving the average household £117 a year. It has extended the fuel duty cut until September and announced £53 million for households reliant on heating oil.

None of this covers business energy costs directly. 

After June, the picture could worsen. Analysts at Cornwall Insight are already forecasting a significant rise in the price cap from July, which will squeeze household spending further and weaken demand for small firms selling to the public. 

The Prime Minister has acknowledged that ministers are looking at support for firms not covered by the price cap. The Chancellor has said the government is planning for "every eventuality", but that help would be targeted and constrained by fiscal rules.

No specific SME package has been announced. For comparison, Spain has introduced a €5bn package, including VAT cuts on energy for businesses and households. The UK has not matched this.

The gap between what households are getting and what small businesses are getting is real. We will keep pushing for clarity on what is coming. 

What you can do now 

• Get a benchmark energy quote: If you are out of contract, you are fully exposed. Even if you do not switch immediately, knowing today's price gives you a reference point. 

• Model a 20% cost increase across your main inputs: Work out what it does to your margins and decide now whether you need to adjust pricing. 

• Tighten cash flow before it bites: Chase outstanding invoices, shorten payment terms, and build a 90-day forecast. The firms that act early will have the most room. 

• Plan around the July price cap review: If your business serves households, the expected rise in energy bills from July could further weaken demand. Factor that into your second-half planning now. 

• Review your cyber security basics: The National Cyber Security Centre has advised all organisations to review their posture in light of the conflict. Check passwords, software updates and backup routines. Small firms are the most common targets. 

This situation is changing fast. We will keep updating our members as the picture develops. 

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