Iran War Drives Up Business Costs As Economists Warn Of Pressure On Hiring, Investment
American businesses are facing higher operating costs and weaker outlooks as the war in Iran continues to disrupt energy markets and supply chains. Economists say rising fuel prices, transportation expenses and materials costs are feeding through production systems, tightening margins across a wide range of industries.
A Business Conditions Survey released by the National Association for Business Economics found that nearly half of respondents said the war has negatively affected their businesses. About 44% reported higher input costs compared with six months earlier, while none of the respondents reported lower costs.
“More than two-thirds of respondents report rising materials costs over the past three months, the largest share since 2022,” NABE President Gregory Daco, chief economist at EY-Parthenon, said. He added that only 13% of respondents expect profits to rise in the coming months, the lowest level since 2023.
Energy, transportation and input costs were identified as the most significant transmission channels, with 54% of respondents citing them as effects of the Middle East conflict on their operations. About 26% pointed to domestic demand and financial market volatility, while 20% cited supply chain disruptions.
“Sales over the past three months were steady, but materials costs increased and profit margins declined,” Survey Chair Martha Moore, chief economist and managing director at the American Chemistry Council, said. She noted that expectations across sales, capital spending, and employment had “softened” in the May survey.
The NABE data shows a clear split between current performance and future expectations. While 48% of respondents reported higher sales over the past three months, only 45% expect sales to increase in the next quarter, down from 56% in January. At the same time, 13% now expect declines, the highest share since mid-2025.
Profit expectations are also weakening. Nearly one-third of respondents expect profitability to decline in the coming months, while 56% expect margins to remain stable.
The survey also shows businesses preparing for slower activity. Nearly one-quarter of respondents said they plan to reduce investment and hiring over the next six months as costs rise and margins come under pressure.
Energy markets remain a central factor in the cost pressures. Oil prices have fluctuated as tensions persist around the Strait of Hormuz. Disruptions to tanker traffic and shipping routes have contributed to higher transportation and freight costs, according to The Associated Press.
Broader commodity markets have also reflected the strain. Rising shipping costs and supply delays have added pressure on manufacturers and exporters already dealing with higher input prices. Reuters reported that energy-linked inflation in freight and raw materials has continued to affect global supply chains tied to Middle East instability.
In financial markets, energy volatility has also influenced corporate earnings trends. While major energy producers have benefited from higher oil prices, manufacturers and consumer-facing companies are absorbing higher costs tied to logistics and production, a CNBC report said.
Recession concerns are also increasing among economists surveyed by NABE. Half of respondents said they see at least a 26% chance of a U.S. recession over the next 12 months, up from 44% in the previous survey.
As geopolitical tensions filter into business operations and in turn weaken profit expectations, firms are becoming more cautious about future hiring and capital spending, even as current sales conditions remain relatively stable.
