The ongoing conflict involving Iran is driving up energy and raw material costs across Europe, dealing another devastating blow to manufacturers still recovering from pandemic losses and the Ukraine war. German chemical companies and other European industries face potential shutdowns as oil prices double and supply chains face major disruptions.
European manufacturers are facing yet another crisis as the Middle East conflict sends energy costs soaring, threatening an industrial sector already weakened by years of challenges.
At a German chemical plant in Kleinkarlbach, Gechem owner Martina Nighswonger describes the mounting pressure from her modest office filled with product samples and packaging materials. Her company has weathered the pandemic’s economic damage, surging energy bills from the Ukraine conflict, harsh U.S. trade penalties, and now faces rising raw material costs from Middle East tensions.
“There’s just no letup. Every year profits get a little smaller, and eventually they’re gone,” Nighswonger explained from her facility, where she now conducts daily emergency planning sessions and relieves stress with a punching bag. “It’s exhausting, and you just don’t know what to do anymore.”
Gechem produces chemical mixtures for household cleaners and automotive brake fluid, placing it directly in the path of the latest crisis affecting European industries from chemicals and plastics to metals, textiles and toys.
Though the Gulf region conflict impacts global businesses, European companies face particularly severe consequences due to already elevated energy expenses compared to other world regions, according to executives interviewed across Germany, France, Denmark and Switzerland.
Iran’s closure of the Strait of Hormuz after Israeli and U.S. military actions had already disrupted oil shipments when recent attacks on major gas facilities in Iran and Qatar drove crude prices near $120 per barrel – twice the early 2026 levels.
The IW German Economic Institute projects Germany’s economy could lose 40 billion euros ($46 billion) over two years if oil remains at $100 per barrel, highlighting European industry’s vulnerability after enduring high energy costs, intense Chinese competition and facility shutdowns.
Germany, Europe’s largest economy still recovering from Ukraine war impacts, pays some of the world’s highest wholesale electricity rates at $132 per megawatt hour, far exceeding the $48 U.S. rate and above the $120 EU average, International Energy Agency data shows.
“Europe is on the chopping block for this and clearly does not have the margin to take a second energy hit in such a short period of time,” stated Ipek Ozkardeskaya, senior analyst at Swiss bank Swissquote. “Germany and the UK look like the most vulnerable to the energy shock.”
Crisis Management Mode
Established in 1861, Gechem represents Germany’s Mittelstand – the 3.4 million medium-sized companies employing over 33 million workers and generating more than half the world’s third-largest economy’s output.
With 46 million euros in sales last year and 165 employees, Gechem has halted new hiring and, for the first time in twenty years, isn’t ruling out layoffs, Nighswonger revealed.
Investment plans for a new bottling machine and solar facility expansion, projects worth millions of euros combined, remain suspended.
Contributing to the strain, sulfamic acid prices from Asian suppliers have jumped 20%, adding 300,000 to 400,000 euros to annual costs for the ingredient used in toilet and dishwasher tablets, Nighswonger noted.
Beyond oil and gas market disruptions, Iran’s Strait of Hormuz blockade has affected supplies of fertilizers, sulfur, helium, aluminum, polyethylene and other essential materials. Transportation expenses have also surged with higher fuel costs.
“The situation will hit our small- and medium-sized businesses especially hard, as many of them have no way to switch their supply of raw materials at short notice,” explained Wolfgang Grosse Entrup, managing director at German chemicals association VCI.
Even before the Iran conflict, Germany’s Mittelstand was struggling from recent crises. Government statistics show 24,064 primarily small and medium companies filed for bankruptcy in 2025, the highest total since 2014.
The strain is affecting Europe’s 635 billion euro chemicals sector throughout the supply chain.
German company Lanxess, with 5.7 billion euros in revenue last year, announced Thursday it would eliminate 550 positions and implement immediate price increases as costs rise.
“We monitor the situation in the Middle East on a daily basis now,” Lanxess CEO Matthias Zachert told media representatives.
Christian Kullmann, CEO of German chemical firm Evonik, said while some additional costs might be passed to customers, certainly not all could be transferred.
German adhesives and consumer products manufacturer Henkel reported indirect raw material price increases, while the country’s largest chemical producer BASF has already raised certain prices by over 30%.
“Our companies are operating in full crisis mode,” VCI’s Grosse Entrup stated.
Supply Chain Emergencies
Similar pressures are spreading throughout Europe’s manufacturing centers.
Peter Voser, chairman of Swiss engineering company ABB, told Reuters an extended Gulf conflict would severely impact the global economy through energy shortages and higher prices.
“In the shorter term, companies which use gas as their primary energy source could even shut down their assembly lines, which could contribute to price increases in some sectors,” he explained. “But the real global impact will come later. The longer the war goes on, the deeper the cut on the demand side will be.”
In France, Marc-Antoine Blin, president of plastic pipe manufacturer Elydan, said Asian suppliers dependent on Middle Eastern oil have declared force majeure, driving up raw material costs.
“We have suppliers in Vietnam and in Thailand who have experienced force majeure and who can no longer ship raw materials,” he stated. Elydan operates six European factories and uses 40,000 to 50,000 tonnes of polymers annually.
If the conflict continues, he would need to transfer higher costs to customers. “I don’t think we can absorb such a shock ourselves by cutting into our margins.”
In Denmark, LEGO is shifting toward recycled plastic and bio-based materials from renewable sources like sugarcane for its toy bricks to reduce fossil fuel dependence, but repeated uncertainty cycles remain concerning.
“Whether it’s COVID, or it’s inflation coming out of that, or it’s Russia attacking Ukraine or, I mean, there’s been so many things – and tariffs last year,” CEO Niels Christiansen told Reuters. “Volatility, of course, is never good.”
Financial Strain
Demonstrating how the Gulf crisis affects business operations, Lanxess canceled a planned joint-venture stake sale, with sources indicating deteriorating markets following the Iran conflict played a role.
Swedish outdoor technology company Dometic suspended its dividend, while Thyssenkrupp Steel Europe, the continent’s second-largest steelmaker, warned sustained gas price increases would impact production expenses.
Germany’s steel industry association WV Stahl called for additional government support to stabilize gas and electricity prices for one of the continent’s most energy-intensive sectors, saying the Iran conflict exposed Europe’s “enormous vulnerability.”
French trade group Polyvia, representing plastics and composites businesses, is raising government concerns as suppliers use soaring gas costs to renegotiate contracts for higher prices – with growing risks of reduced supply allocations.
However, European governments have less financial flexibility than in 2022 to protect industry with massive subsidies. If oil approaches $130 per barrel, default risks will increase significantly for sectors including metals and chemicals, according to Karl Pettersen, co-head of corporate ratings at Scope Ratings.
“Europe’s competitiveness hinges on improving its supplies of secure, affordable energy,” he concluded.
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