Iran, the Strait of Hormuz, and the Distress Risks Ahead

On February 28, 2026, the United States and partner forces launched Operation Epic Fury against Iranian leadership, missile, and nuclear-related sites, triggering a regional conflict marked by repeated strikes and Iranian missile and drone retaliation. One immediate commercial consequence has been disruption of shipping through the Strait of Hormuz, a critical chokepoint for oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), chemicals, petrochemicals, and other industrial inputs. As described herein, the resulting exposure will not be limited to businesses with direct Persian Gulf (Gulf) operations. Companies without a physical presence in the region may still face material risk through higher energy and input costs, shipping disruption, longer transit times, stressed counterparties, and tightening liquidity. Such pressures may require prompt attention to disclosures, financing flexibility, contractual protections, and other measures to mitigate the risk that Iran-driven disruption becomes an abrupt distress event.

The Immediate Effects of Disruption in the Strait of Hormuz

Disruption in the Strait of Hormuz first hit energy and transport markets, but the impact will quickly spread to supply chains and credit markets.

Energy Cost Spikes

The first-order effect is an energy-price spike. Roughly 25% of global oil trade and 20% of global LNG trade move through the Strait of Hormuz, so disruption raises not only fuel prices but also electricity, steam, and heat costs in gas-reliant manufacturing hubs and utilities. Asia and Europe are particularly vulnerable because they rely heavily on Gulf crude, LNG, and petrochemical imports. A prolonged supply disruption also puts Australia at risk because, although it imports little fuel directly from Gulf countries, it relies heavily on refined oil products from Asian refineries that source some crude through the Strait of Hormuz. Sustained increases in fuel prices will depress discretionary consumer spending, adding pressure to strained consumer-facing businesses. Elevated energy prices could also reinforce inflation and delay rate cuts, increasing financing costs for highly levered firms with near-term maturities.

Shipping Disruption

Conflict in and around the Strait of Hormuz also disrupts shipping. Commercial traffic fell sharply as shipowners and insurers reassessed security risk. Multiple vessels have already been struck, and threats of naval mining are expected to prolong the disruption. War-risk premiums rose from roughly 0.2% of ship value to as much as 1%, while some insurers withdrew coverage altogether. Although the U.S. Development Finance Corporation backed a $20 billion reinsurance facility, this will not entirely mitigate the rerouting of shipping around the Cape of Good Hope, which adds voyage time, bunker consumption, cargo cost, and inventory delay for downstream customers. Traffic is unlikely to normalize until security risks decline and shipowners and insurers view the route as commercially insurable again.

Chemicals Exposure

Chemicals producers are likewise exposed on both costs and inputs. Gulf suppliers provide meaningful shares of Europe’s naphtha, LPG, fertilizer, and other petrochemical feedstocks. The disruption also threatens sulfur and sulfuric-acid-linked supply chains critical for metals processing. As production stops and cargo cannot move, European manufacturers may struggle to replace supply quickly or cheaply. That impact is expected across both general- and specialty-chemicals producers. Combined with higher energy costs, this could result in curtailments, margin compression, and negative free cash flow.

Risks of Iranian Retaliation

Iranian retaliation creates a separate channel of distress for civilian industries. Companies with large Gulf operations face not only higher energy and shipping costs but also the risk that missile and drone threats will interrupt operations, utilities, and site access. For companies with high fixed costs or thin liquidity, even a brief shutdown can turn property damage, lower utilization, and emergency spending into acute cash burn.

Cyber retaliation broadens that risk beyond the Gulf. U.S. agencies have warned that Iranian-linked actors may target vulnerable U.S. networks, infrastructure, and companies in sectors of interest to Iran. Even limited cyber intrusions can impair business operations, disrupt service, damage reputations, and result in massive remediation expenses.

Risks of Redirected Government Funding

A prolonged conflict could also affect United States government funding of private sector activities. To illustrate the breadth of this funding, U.S. Department of Energy programs support energy and manufacturing projects, the U.S. Department of Agriculture supports rural energy, agriculture, and biofuels, and the U.S. Department of Transportation and Federal Aviation Administration support highways, runways, terminals, and transit infrastructure. While deficit spending has become the norm in the United States, prolonged conflict can increase appropriation risk for projects that depend on annual discretionary funding, especially when Congress is operating under spending caps, continuing resolutions, or deficit-driven negotiations. That risk is program-specific, however, because Congress often funds conflicts through emergency or supplemental appropriations outside ordinary caps, and many transportation and energy programs rely on trust funds, multiyear appropriations, or other funding mechanisms. Still, the Committee for a Responsible Federal Budget has cautioned against supplemental war funding because federal fiscal bandwidth is limited, creating real balance-sheet risk for businesses that expect public funds to support their capital plans.

Most Affected Sectors

Chemicals and Petrochemicals

European chemicals and petrochemicals producers may face the earliest financial pressure. European inventories of naphtha, LPG, methanol, and other feedstocks can buffer a short disruption but not a prolonged one. Once existing naphtha stocks are consumed, shortages will ripple through polymers, plastics, and specialty chemicals.

Packaging and Materials

Packaging and materials companies sit downstream from the energy, petrochemical, and aluminum chains most exposed to a conflict-related disruption in the Gulf. Plastic-packaging producers reliant on polyvinyl chloride (PVC) or polyethylene terephthalate (known as PET) are vulnerable if input costs rise faster than customer repricing. Pass-through clauses often lag for weeks or months, creating margin compression and working-capital strain. Aluminum packaging, glass, and paper producers will also face higher energy costs as energy-intensive businesses. The sector is therefore expected to experience spikes in raw-material and energy costs at the same time, pressuring liquidity quickly as the conflict persists.

Travel and Tourism

Travel and tourism businesses face both cost inflation and demand weakness. Airlines must absorb or pass along costs resulting from higher jet-fuel expense, airspace restrictions, rerouting, cancellations, rebooking costs, refunds, and softer demand for Gulf-linked destinations. Those strains could then spread to hotels, restaurants, airport retailers, and other travel-linked businesses. If travelers avoid Gulf destinations or newly inconvenient travel routes for an extended period, the effects will likely be felt by local business that that are highly levered, operate with thin margins, or have smaller working capital cushions.

Food Production and Agriculture

About 40% of global urea trade and significant volumes of ammonia, sulfur, and phosphate move through the Strait of Hormuz. Disruption of these critical fertilizer inputs will raise agriculture prices just ahead of the upcoming Northern Hemisphere planting and fertilizer-application season. Over time, fertilizer disruption also raises feed, poultry, pork, and beef costs. Farmers, processors, and grocers will eventually pass through some of the increase, but procurement costs usually rise first, leaving margins and liquidity exposed in the interim.

Automotive Engineering

Automotive suppliers, especially in Europe, face higher costs and disruption in supply of aluminum, chemicals, and plastics. Gulf smelters account for meaningful volumes of Europe’s aluminum imports, yet those smelters face difficulty importing alumina and bauxite and exporting finished metal through the Strait of Hormuz. The timing is especially difficult because Europe is simultaneously phasing out Russian aluminum under EU sanctions. Rising input prices also lift the cost of metals, plastics, resins, adhesives, insulation, and sealing products used across engines, interiors, and component systems.

Semiconductor Manufacturing and Electronics

About 40% of traded helium originates in Qatar as a byproduct of LNG processing. Helium is essential to semiconductor manufacturing, and no commercial substitute exists. With Qatari production halted, roughly one-third of global helium supply has disappeared. Even if production restarts, helium transport depends on specialized containers that are not easily repositioned. South Korean manufacturers — which source 65% of helium imports from Qatar — are particularly exposed to prolonged disruptions, which would disrupt chip production at a moment when semiconductor demand is elevated because of AI-driven investment and demand for electronics and medical devices.

Building Materials

Building-materials manufacturers face the same input problem from a different end market. Producers of windows, doors, roofing, cladding, and insulation will see higher costs for PVC, petrochemical derivatives, and aluminum even as construction demand softens on financial uncertainty and higher energy costs. Where customer pass-through lags, the combination of weaker volume and higher raw-material costs is expected to create a difficult earnings and liquidity environment, especially for European firms already facing soft construction demand.

Takeaways

Businesses without direct Gulf operations should not assume they lack exposure. For many companies, early risks can be anticipated by identifying where even a brief disruption will create balance-sheet problems. Several practical steps may reduce the risk that Iran-driven stress becomes an abrupt distress event. Companies should also consider which of the following steps are warranted to build a record of appropriate governance and the discharge of fiduciary duties in response to a volatile geopolitical crisis:

• Public companies should reassess their risk disclosures, including whether acute developments warrant updated risk factors, management discussion and analysis reporting, or a Form 8-K. Management teams should also consider whether board-level decision making is calibrated for a fast-moving geopolitical event.

• Public and private companies should assess near- and medium-term liquidity against assumptions of higher energy and input costs, shipping delays, weaker demand, and no near-term rate relief. That review should examine maturities, covenants, revolver availability, and triggers for engaging creditors or sponsors before markets deteriorate.

• Companies with exposure to Gulf-linked inputs or shipping lanes should review pass-through mechanics and identify alternative suppliers, transport routes, or inventory buffers where feasible. Companies should also revisit affected commercial contracts to understand force majeure rights, possible price adjustments, and conditions of termination.

• Companies should identify exposure not only to affected inputs and transport routes but also to stressed vendors, customers, distributors, and other counterparties whose own liquidity or operational problems will result in supply shortfalls, payment risk, or contract-performance issues.

• Boards and management teams should revisit cybersecurity readiness and insurance coverage to identify exclusions, notice requirements, and possible claims issues before an event occurs.

• Companies should anticipate that financial stress from a prolonged Iran conflict may catalyze creditor groups and other stakeholders to organize, with lenders, bondholders, trade creditors, and sponsors seeking to protect their positions amid deteriorating financial conditions.

• Companies and sponsors should anticipate whether they will need to engage in a hygiene exercise of balance-sheet analysis; maturity extensions, liability management exercises, and stakeholder communications are easier to evaluate and plan before performance deteriorates.