Situation
As the Middle East conflict enters its third month, it is no longer a regional event. Around 20% of global oil and gas flows transit the region, with key shipping routes for commodities under sustained pressure. The longer the conflict persists, the more it becomes a structural, not cyclical, issue.
The transmission pattern is familiar from the 2022 energy crisis. Initial energy shocks move into freight, then cascade into dependent areas, which in this case include chemicals, metals, fertilizers, packaging, and other critical inputs. Suppliers reprice based on risk, which is most often faster than internal governance can respond. What starts as a pricing shock quickly becomes a procurement issue, which quickly becomes a board issue.
This key rule holds: markets price shocks before shortages are visible. By the time OTIF (On Time In Full) failures or allocation notices arrive, capacity has already been booked, and prices have moved on. Organizations that act early build an advantage that their competitors will struggle to close.
Exposed categories
Following the first order exposure in energy, rising raw material costs feed into secondary markets and into partially assembled and finished products. For example, helium constraints are affecting semiconductor production; aluminum and fertilizer disruptions are flowing into manufacturing and food; copper demand and power price volatility are slowing energy transition projects. The effects extend well beyond this list:
(including helium)
Regional exposure
| Region | Exposure | Commentary |
| Europe | Medium–High | Greater supply flexibility than Asia, but exposed to gas, freight, and industrial input cost pass‑through. Ukraine showed how fast this can move. |
| Asia | High | 80% of Middle East energy flows go to Asia. Most exposed to physical supply stress across all categories. |
| United States | Medium | Relatively insulated on direct energy supply due to domestic production, but exposed to global price formation, imported input costs, and supplier pass‑through. |
| Australia | Medium–High | Exposed to global shipping disruption, with added pressure from intensified Asia‑Pacific supply competition. |
Key risk horizons
1. FY2026: Immediate budget risk
In FY2026, fuel and energy budgets are at direct risk. Prices are not normalizing, and the assumption of near‑term de‑escalation is increasingly fragile and unlikely.
Importantly, headline risk is not the same as physical risk. Markets have repriced, but the supply disruption is structural, and every week the conflict persists, the recovery timeline extends. Shipping lanes, insurance markets, and supplier allocation will take months to recover even after the conflict ends. Organizations moving now are locking in positions and options that will not be available later. Their advantage will likely endure.
2. 2027 and beyond
The longer the conflict persists, the more exposed forward positions become. Summer 2027, Winter 2027, and 2028–2029 are now inside the active risk window for planning, contracting, and capital allocation.
Organizations that hedged through Winter 2026 and assumed de‑escalation are now sitting on an open position at exactly the wrong time. Three forces are compounding this:
- Inflation becomes sticky as it transmits from fuel to feedstock to components to finished goods
- Contract mechanics are being tested. Escalation clauses, indexation, and surcharges will move faster than most governance can absorb
- European government support will be constrained by high debt‑to‑GDP ratios. Most sectors should plan to carry more cost and continuity risk themselves and seek to recapture some of this through savings elsewhere
Where forward pricing at acceptable levels is available now, the decision not to hedge is itself a risk position. Organizations locking positions today are creating optionality that their competitors will not have.
3. Physical supply risk
While price is visible, availability is often the bigger threat. When energy and logistics shocks combine, suppliers start prioritizing customers who are predictable, fast to decide, and commercially credible. Organizations already in dialogue with key suppliers are securing transparency, flexibility, and allocation priority. That gap widens every week.
The pattern in stressed markets is selective allocation across categories, working capital strain as costs arrive before supply normalizes, and shortened quote validity, making forward budgeting harder.
What to do now:
- Quantify exposure three years forward
Identify exposure across energy, freight, petrochemicals, metals, and industrial gases. Quantify EBITDA and working capital sensitivity at the category level. - De‑risk near‑term exposure
Do not wait for certainty. Where forward pricing is at levels the business can absorb, act. The objective is not to time the bottom; it is to cap the upside before the window closes. - Stress‑test contracts now
Review force majeure, indexation, surcharge triggers, change control, and re-opener clauses. Agree on internal escalation routes before a crisis forces the conversation. - Start supplier conversations immediately
In tight markets, suppliers prioritize customers who are transparent and commercially credible. Use relationships to secure early warning signals, agree on risk sharing, and protect allocation. This applies below Tier 1, where the real exposure often sits. - Build operational optionality
Dual sourcing, selective inventory buffers, specification flexibility, and regionalized supply strategies - Align internally on customer pricing and pass‑through
Engage commercial teams now. Cost transmission will arrive faster than most pricing governance can respond. Pre-agreed escalation routes protect margin and customer relationships simultaneously.
Proxima, working alongside its energy markets partner Flow&Ebb, helps organizations translate geopolitical energy shocks into clear commercial actions.
Combining deep procurement, contracting, and supplier strategy expertise with real‑time energy market insight to help leaders secure supply, manage price risk, and make faster, better‑governed decisions
Read our full Middle East Briefing
Our 2026 Middle East Briefing outlines the key risks procurement leaders face, how energy shocks can drive wider cost inflation and supply disruption, and the actions organizations should take now to protect costs, supply security, and resilience.
Download it now.
