Global conflicts can feel distant—until they start affecting your costs.
Rising oil prices, supply chain disruptions, and increased operating costs are already creating new pressures for business owners who are still navigating inflation, tariffs, higher interest rates, and shifting consumer demand. And with the Strait of Hormuz—a critical route for global oil supply—potentially disrupted, those pressures could intensify quickly.
To understand what this means for small businesses, I spoke with Ben Johnston, COO of Kapitus, who offered critical insights into how escalating tensions could affect everything from margins and hiring to supply chains and access to capital—and what small business owners can do to stay resilient.
The Immediate Impact: Energy and Supply Chains
Rieva Lesonsky: How could the war with Iran impact small businesses in the U.S., particularly when it comes to energy prices, oil/gas, supply chains/transportation, and operating costs?
Ben Johnston: The war with Iran has effectively closed the Strait of Hormuz and forced producers in the Gulf region to begin shutting down oil and gas production, actions that cannot be quickly reversed. Given that approximately 20% of the world’s oil production must travel through the Strait of Hormuz in order to reach consumers, it is likely that this disruption will be significant and last for weeks or months, depending on the duration of hostilities and the time it takes to reestablish production and a working supply chain once the war is over.
Margins Under Pressure—and Tough Decisions Ahead
Lesonsky: What does rising oil and gas volatility mean for small business margins and hiring decisions in the months ahead?
Johnston: Rising oil prices are yet another shock to operating margins that small businesses need to contend with. Almost a year ago, small businesses were contemplating the impact of “Liberation Day” tariffs imposed on nearly all of our trading partners. Over the course of the year, small businesses learned to navigate these tariffs, altering supply chains and onshoring as much production as possible to avoid the tariffs’ most painful effects.
At the same time, businesses grappled with improving yet stubbornly high inflation and interest rates, which combined to further reduce small business margins. Today, with oil climbing above $100 per barrel, small businesses are once again grappling with the impact of an unforeseen expense and agonizing over whether to pass these increased costs on to an already stretched customer base.
We expect small businesses will likely delay raising prices as long as possible—similarly to when tariffs were first introduced—but that businesses will ultimately need to pass these expenses on to customers should prices remain elevated for several months.
The uncertainty caused by a sudden spike in oil prices and the lack of clarity about its severity and duration will likely cause many small businesses to retrench, holding off on starting new projects, taking on new hires, and investing in the growth of the business until the picture becomes clearer. Given the importance of small businesses to the U.S. economy, this could significantly increase the unemployment rate and slow overall GDP growth.
The Ripple Effects Most Businesses Don’t See Coming
Lesonsky: What are some of the lesser-talked-about impacts?
Johnston: In addition to oil and gas, Gulf states also export a range of products critical to global agriculture and manufacturing, such as fertilizer that is critical for maintaining crop yields around the world, helium used in semiconductor and other high-end manufacturing, and aluminum, steel, and concrete, all critical to support the global construction industry.
In addition, many manufacturers of these products in Europe and Asia rely on oil and natural gas from the Persian Gulf to fuel these industries. As a result, U.S. manufacturers of similar goods may have an advantage due to their access to more consistent and affordable petroleum products extracted and refined in the U.S.
A Potential Upside for U.S. Businesses
Lesonsky: What industries will be impacted most by these disruptions?
Johnston: One of the industries with the highest dependency on oil and gas prices is the transportation industry, which includes long-haul trucking as well as short-haul and local delivery services. Fuel oil is one of the transportation industry’s primary operating expenses, and operators will feel the impact of this disruption immediately.
The agricultural industry is also highly exposed, given the diesel-powered heavy machinery used in production, the distribution costs required to get products to consumers, and the fertilizer needed to maintain crop yields.
Many small manufacturers also have significant exposure, as oil and gas are often used directly in the manufacturing process, to generate electricity for power plants and equipment, or in the production of raw materials such as plastic, aluminum, and steel.
In addition, the construction industry has significant exposure to the petroleum markets, given the heavy machinery used during the construction process and the building materials required in modern construction.
On the positive side, the U.S. has a robust oil and gas industry that employs many small businesses involved in both upstream and downstream production. These businesses will benefit from higher prices, which, if sustained for a long enough period, make additional oil and gas projects economically viable.
It is also important to note that, as the world’s largest oil and gas producer, the United States is less exposed to economic disruption than many other developed economies, especially those in Europe and Asia. As a result, it is likely that fuel costs will rise faster and higher in parts of the world where we are currently levying tariffs to drive production back to the United States. If U.S. oil prices become a relative advantage for American businesses, it may help accelerate the repatriation of manufacturing to the U.S. during this time of instability.
How Small Businesses Can Stay Resilient
Lesonsky: What financial strategies should small business owners consider to stay resilient against sudden economic shocks?
Johnston: Over the past several years, small businesses have become all too adept at managing through crises. Many have learned the hard way the importance of keeping a close eye on margins, managing supply chains and cost of goods sold, and developing products that appeal to cost-conscious consumers.
Successful businesses today maintain options in their supply chains, headcount, and access to capital. Many businesses are investing in automation to control more of their supply chains and reduce dependence on human capital. With recent advances in AI, many businesses are now adopting AI tools to help them connect with and manage customers, handle accounting and business analytics, and even develop software.
Successful businesses also maintain multiple financial relationships capable of providing working capital to fund growth. Many also finance equipment purchases and maintain revolving lines of credit to manage the volatility of cash flows month to month. It is important for small businesses to maintain both bank and non-bank relationships to ensure access to a full suite of financial products.
What This Means for Lending and Capital
Lesonsky: Do you expect this conflict to influence interest rates, lending conditions, or access to capital for small businesses?
Johnston: Simply put, uncertainty in the economy leads to higher lending prices. If higher oil prices reduce business margins, the market will react by demanding higher rates to compensate for increased risk.
Small business revenue is made up primarily of consumer spending. Rising oil prices hit consumers directly by increasing non-discretionary spending, such as the cost of driving to work and heating one’s home. As a result, consumers cut back on the discretionary spending that small businesses rely on, thereby reducing cash flow and financial health.
Rieva Lesonsky is the founder of Small Business Currents, a content company focusing on small businesses and entrepreneurship. You can find her on Twitter @Rieva, Bluesky @Rieva.bsky.social, and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
Photo courtesy Getty Images for Unsplash+
