Businesses are facing rising costs during the Iran war, and economists expect more strains ahead

NEW YORK — The U.S. and Israel’s war against Iran is adding costs for businesses, and many economists expect a grim picture, with some preparing for a slump in hiring and investment in the coming months.

A research issued Monday says over half of American business economists responding to a survey by the National Association for Business Economics say the conflict has negatively impacted their operations, and most (54%) say they’ve been hurt by increased energy prices. More than two-thirds said material costs increased in the last three months, the highest amount NABE has recorded since July 2022.

The Iran war, which began with U.S. and Israeli strikes on Feb. 28, has thrust the globe into an oil catastrophe. Crude oil prices are rising as Washington and Tehran remain locked in a standoff in the Strait of Hormuz – deepening price shocks for firms and people around the world. Rising fuel costs are becoming an ever heavier burden on the day-to-day operations of enterprises in terms of transportation expenditures. Disruptions to the supply of other commodities, including fertiliser, are also adding to the burden.

Businesses are passing increasing costs on to their shoppers, and consumers are picking up more and more of the tab, beyond the acute sticker shock at the petrol pump.

Almost half (48%) of NABE’s survey respondents — economists from businesses, trade associations and academics — said their firms were passing on at least some cost hikes to customers, down from 60% in January. A growing number (16%) also expect to boost prices in the next six months, while none plan to cut prices, NABE reported.

The majority of the respondents said their organizations are enjoying robust sales presently and have consistent profit outlooks. That's in keeping with what traders are more broadly feeling on Wall Street, where eye-catching earnings from businesses ranging from tech to major oil have helped boost markets to near-record highs recently.

Yet only 13% of NABE survey respondents said they expect to see profits rise in the near term. That’s the lowest share NABE has seen since 2023, it claims.

Impacts on jobs and spending may be coming soon. Nearly 25 percent of NABE poll respondents said they plan to reduce investment and recruiting in the next six months.

“Sales were steady over the past three months, but materials costs increased and profit margins declined,” Martha Moore, chair of the NABE’s survey, said in a prepared statement — noting that expectations had “softened” across several indicators, while the outlook for prices continues to accelerate.

“We’re seeing rising recession concerns,” said Moore, who also serves as chief economist and managing director at the American Chemistry Council. The NABE found that half of the survey’s respondents estimate more than a one-in-four possibility the U.S. will enter a recession within the next year, up from 44% of respondents who forecast such a risk in January.