The Middle East Conflict: What It Means for Businesses Trading Internationally

Last updated: 16 March 2026. This situation is evolving rapidly. We will update this briefing as material developments occur.

TL;DR

The US-Iran conflict has closed the Strait of Hormuz, sending oil above $100 and upending the macro outlook. US recession odds have risen to 25–40% depending on the forecaster, with Europe and Japan potentially facing even worse odds. Rate cuts are being delayed or scrapped, and currencies are swinging — with the dollar strengthening short-term but US policy still favouring weakness longer-term. For businesses with international revenues, the range of possible outcomes has widened sharply. If you haven’t stress-tested your FX and treasury exposure recently, now is the time.

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What’s happening

Two weeks have passed since US-Israeli military strikes on Iranian missile infrastructure began on 28 February. With the fog of war still thick, we’re now starting to see the outlines of each side’s strategy — and what it means for international trade and business planning.

Iran has responded to the strikes by closing the Strait of Hormuz — the narrow passage between Iran and Oman through which roughly 20% of the world’s oil supply normally flows. The International Energy Agency has called this the largest oil supply shock in history by volume.

The strategic calculus on both sides

For the US, the original expectation was a short, sharp action followed by a swift exit. That calculus has shifted. With the Strait closed, the US cannot credibly claim success until it reopens — but forcing it open militarily carries severe escalation risks. The pressure is toward further action, not withdrawal.

For Iran, keeping the Strait closed is its most powerful — and simplest — piece of leverage. It requires no advanced weaponry to maintain, but would require enormous force to reverse. Iran has little incentive to relinquish this card voluntarily.

The result is a stalemate that pushes toward escalation rather than resolution. Prediction markets now place the odds of a ceasefire before June below 50%.

Is this a repeat of the 1970s oil shocks?

Not yet. Brent crude has crossed $100, but the five-year forward price remains below $70, meaning markets expect a relatively short disruption. In inflation-adjusted terms, oil prices are well below the peaks seen in 1973, 1979, or even 2008. But the longer the Strait stays closed, the harder that sanguine view becomes to sustain.

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What this means for your business

The economic outlook has darkened — fast

Goldman Sachs has raised its 12-month US recession probability to 25%. BCA Research goes further, putting it at 40% for the US and 50% for both Europe and Japan. As a rule of thumb, every 10% rise in oil prices shaves 0.1–0.2 percentage points off global growth while adding roughly 40 basis points to inflation. Credit conditions are already tightening, and businesses should expect lenders to become more cautious in the months ahead.

Central banks are stuck — rate cuts are off the table for now

Before the conflict, markets were pricing in meaningful rate cuts from the Fed and the Bank of England during 2026. That expectation is rapidly unwinding. Goldman has pushed its expected Fed cuts back to September and December. The Bank of England faces a particularly difficult balancing act: a weakening UK economy that needs support, but energy-driven inflation that makes cutting rates risky. BCA warns that higher inflation will erode real income growth and make central banks less willing to provide liquidity — increasing the risk of a global economic downturn. The era of “rates coming to the rescue” may not apply this cycle.

Currency markets are being pulled in two directions

In the short term, the dollar is strengthening. The US is far more energy-independent than Europe or Asia, making it the relative safe haven. Asian currencies are under the most pressure — China, India, Japan and South Korea account for around 70% of Hormuz crude shipments. The Japanese yen is back near its all-time low. Sterling is caught in the crossfire, vulnerable to both a hawkish BoE response and slowing growth.

However, the medium-term picture is different. The US administration’s stated policy preference before the conflict was for a weaker dollar, lower yields, and cheaper oil. If the conflict resolves relatively quickly, that policy direction is likely to resume — creating a potential reversal in currency trends.

For businesses with multi-currency revenues, this two-way risk is the central challenge: the direction of travel depends entirely on how long the conflict lasts, and that is genuinely uncertain.

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The bottom line

The range of outcomes has widened dramatically. Businesses with international revenues face a period where currency moves, borrowing costs, and customer demand could all shift materially — and not necessarily in the same direction. The cost of leaving FX and treasury exposure unmanaged has increased significantly.

If you’d like to discuss what this means for your business, our team is available for a no-obligation conversation — whether that’s reviewing your FX exposure, stress-testing your cash flow under different scenarios, or simply talking through the options.

Schedule a conversation with our team →

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HedgeFlows is authorised and regulated by the Financial Conduct Authority. This briefing is for informational purposes only and does not constitute financial advice. Views expressed are as of the date of publication and are subject to change.