The war in the Middle East is squeezing U.S. corporate profits and could push up prices on everything from plane tickets to groceries, financial and accounting experts say.
The first casualties: jet fuel, diesel, shipping and raw materials. Companies now face a choice — eat the cost, or pass it to customers.
Crude has averaged about $90 a barrel this year, up from roughly $70, said Randy Carver, founder of Carver Financial Services and a wealth manager with more than 35 years of experience.
“The right question probably isn’t, ‘Is the conflict hurting earnings?'” Carver told Thomson Reuters on August 28. “I think the question is: Where does the company sit in the economic chain?”
Three stages of pain
Carver breaks it down simply. First: the direct hit — oil, jet fuel, shipping, insurance. Second: can the company push the cost onto customers? If it has pricing power, he said, the impact barely touches the bottom line — it just gets passed along. Third: the ripple effect, as manufacturers pay more for raw materials and decide whether to eat it or pass it on.
Case in point — Qantas. The airline said this week the conflict could shave 14% off profit, thanks to fuel costs. Carver calls it “a temporary thing.”
Fuel and shipping get hit first
Heavy fuel users and global shippers feel it first. Companies with strong brands or little competition can slap on surcharges and protect their margins.
“If the costs rise faster than prices, operating margins are getting squeezed,” Carver said.
That squeeze doesn’t stay put — it shows up in pricier flights, delivery fees, building materials and grocery bills.
It’s already showing up in the numbers. UFP Industries, a building-products company, tacked on roughly $31 million in extra fuel and transportation costs last quarter alone, according to Bob Michaels, a partner at CrossCountry Consulting.
“Even without direct operations in the region, companies are facing higher energy prices, longer shipping routes, and disrupted supply chains,” Michaels said.
Fuel and freight move fast because markets price them in real time. Other effects — shortages, softer demand — take longer to show up.
Airlines feel it worst
Jet fuel is one of an airline’s biggest expenses, and carriers have already reported hundreds of millions in conflict-related costs in a single quarter, Michaels said.
Retailers and manufacturers get hit too, when goods travel farther or cost more to move. Banks feel it more indirectly — only if their borrowers start to struggle.
The paperwork is piling up
Companies now have to spell out in filings how the war is hitting them, and whether it’s creating new risks with suppliers, customers or lenders.
It’s not just about higher bills, either. The conflict is scrambling the assumptions companies use to build their financial statements. Carver pointed to a Deloitte alert from April flagging energy and commodity pricing risk — specifically, rising freight and logistics costs tied to longer shipping routes, which raise thorny questions about how inventory gets priced and when revenue should be booked. Deloitte’s message to companies: tighten internal controls.
Investors should also expect companies to flag concentration risk — heavy reliance on one supplier, customer or market that’s now exposed, Carver said. And companies have to account for anything material that happens between the close of a reporting period and when the financials actually get filed — what Carver calls “a pretty fluid type of thing.”
A small cost bump this quarter can turn into a real disclosure next quarter.
“Something that looked immaterial in an early disclosure can become material a quarter later,” Michaels said.
Some companies may even need to write down factories, inventory or goodwill if the war drags down their long-term outlook.
“If the conflict causes a company to lower those projections … that can result in a write-down,” Michaels said.
Not everyone loses
Here’s the twist: this isn’t bad news for everybody. Energy producers, and any company that can pass costs to customers, could come out ahead.
“For every company using energy, there’s another company selling it at a higher price,” Carver said.
Investors should watch for lower guidance, bigger reserves, write-downs and beefed-up disclosures about fuel and freight. Consumers will feel it more bluntly — at the pump, at the airport, at checkout.
Carver points to COVID as the playbook. Many assumed shutdown supply chains would sink businesses — instead, plenty thrived. He calls it “a great case study,” though this time likely on a smaller scale.
“It’s going to have an impact,” Carver said. “My opinion: maybe a year, but I don’t think it’s going to be super long-term.”
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