three-week war warning: small firms brace for price shocks and flight chaos

Sleepless shopkeepers as war fears threaten food, fuel and survival

We seem to be spending out lives wondering what will happen if…..?

If the war in Iran carries on how will food prices be affected?

If airlines struggle to get jet fuel will be flight cancellations?

If the war lasts another 3 weeks….?

Small and micro businesses, that we all depend on, on the high streets, for care for our relatives, for food production, in our everyday lives, are under a great deal of stress already. That’s business stress and personal stress.

New research from Novuna Business Finance shows that more than three quarters of small business owners are losing sleep due to rising costs, geopolitical instability, tax pressures, and regulatory burdens. This reflects the real‑world strain on microbusinesses, especially those already juggling cashflow and customer retention. Poor sleep leads to mental health problems and given that 4.8 million of our UK businesses are micro businesses this is a vital segment of our business ecosystem at risk.

Food inflation is already above the 3% level for general inflation and according to the Food and Drink Federation is set to climb to 9% if the Straits of Hormuz are reopened in 2 to 3 weeks. If that rep=opening takes longer inflation could rise further. Imagine running a small retailer of restaurant with that prospect hanging over your business. Asking customers to pay more for their food in the current economic climate means losing customers and could be existential.

Major UK based airlines are saying that they have 5 or 6 weeks of supply of jet fuel before they run short and are forced to cancel flights. It’s not just holidays that small business owners are worried about, but about their business relationships abroad, their supplies of they come into the UK by air, or their exports if they too travel by air. All of those businesses may be struggling to supply their customers here in the UK, whether other businesses or domestic consumers. Jet fuel shortages and flight cancellations have huge ripple effects.

No wonder our precious micro business owners aren’t sleeping.

I’ve been doing some scenario planning and here’s my take (warning: it’s a bit gloomy!)

If the war lasts another 3 weeks:

• Energy and fuel prices: Stay elevated and volatile, but markets still treat it as a shock, not a new normal.

• Inflation: Ticks up, but central banks and markets may still expect medium‑term easing.

• Growth: Business activity slows but remains in “weak growth” territory, as already seen in recent PMI data.

·         Small and micro businesses face cost squeezes but not yet existential:

o    Higher fuel, delivery, and input costs (especially for anything energy‑intensive or imported).

o    Some suppliers extending lead times or adding surcharges.

o    Some customers extending payment terms in contracts or paying late to preserve cash.

• Consumers are more cautious but still spending:

  • Discretionary spend goes down (salons, florists, hospitality, non‑essential retail), but not a collapse.

• Finance is still available, but harder to get:

  • Lenders more cautious; pricing of new borrowing edges up.

Small business approach:

• Tactical, not drastic:

  • Tighten cost control, review pricing, and protect cashflow.

  • Start mapping supply‑chain vulnerabilities and alternative suppliers or customers.

  • Lock in the best possible energy or finance deals if they’re still available on reasonable terms.

Photo by Kelly Sikkema on Unsplash

If the war lasts another 3 months

• Energy shock becomes embedded:

  • Oil and gas prices stay high; wholesale gas up significantly vs pre‑conflict levels.

  • Fertiliser and petrochemical‑based materials (plastics, packaging, some cosmetics, cleaning products) rise in price.

• Inflation re‑accelerates:

  • The Bank of England delays interest rate cuts; further rate rises become probable.

• Growth slows even further:

  • Surveys show UK business growth and confidence is stalling due to the conflict and three more months of war would deepen that trend.

For small and micro businesses

• Margins are under sustained pressure:

  • Energy, logistics, and input costs rise together; suppliers pass on more of their own pain.

  • Businesses that don’t reprice or cut costs see profits erode quickly.

• Demand becomes patchy:

  • Middle‑income households cut back on “nice‑to‑have” services and products.

  • B2B customers delay projects, stretch payment terms, or reduce order sizes.

• Finance risk increases:

  • Variable‑rate loans and overdrafts get more expensive.

  • Refinancing becomes harder and costlier, especially for weaker credit profiles.

Business outcomes at 3 months

• Survival gap widens:

  • Well‑run small businesses with cash buffers, strong credit control, and flexible cost bases survive and may even grow.

  • Thin‑margin, highly leveraged, or energy‑intensive microbusinesses start to struggle seriously.

• Behaviour changes:

  • More firms push through price rises.

  • Increased use of payment plans, deposits, and stricter credit terms to protect cashflow.

If the war drags on until the end of the year

Likely macro picture

• Moves from shock to structural change:

  • Persistent disruption around the Strait of Hormuz and Gulf infrastructure keeps energy and shipping costs structurally higher.

  • Some supply chains permanently reroute (longer routes, higher costs).

• Stubborn inflation and higher‑for‑longer rates:

  • Inflation stays above target; interest rates stay up or rise again.

  • Real incomes are squeezed and consumer confidence stays weak.

• Uneven, fragile growth:

  • Some sectors (defence, energy services, certain tech and logistics niches) grow; others (hospitality, non‑essential retail, some manufacturing) contract.

What this feels like for small and micro businesses

• Business model stress‑test:

  • Firms with high fixed costs (premises, staff, debt) and low pricing power face real risk of having to close.

  • Late payment, longer payment terms and bad debt increase as weaker customers fail.

• Labour and wages:

  • Pressure for wage rises increases due to rising cost of living, even as demand falls, squeezing labour‑intensive sectors like care, hospitality, salons, and construction.

• Refinancing cliff edges:

  • Small businesses needing to refinance loans, leases, or overdrafts face tougher terms, demands for more security, and higher interest rates.

Likely outcomes for small businesses of a prolonged war

• Higher business failure rates in vulnerable sectors:

  • Microbusinesses with low reserves, weak cashflow management, or heavy dependence on imported inputs are most at risk.

• Consolidation and market‑share shifts:

  • Resilient small businesses pick up customers, people, and assets from failed competitors.

  • Local, shorter, and more diversified supply chains become a competitive advantage.

• Policy and support environment:

  • There’s a stronger case for targeted government support (energy, finance, procurement, late payment enforcement), but timing and design are uncertain.

Key risks

• Energy and logistics: Higher and more volatile costs, especially for delivery‑heavy, refrigerated, or energy‑intensive operations.

• Supply chain fragility: Longer lead times, stockouts, and price spikes for imported goods and petrochemical‑based inputs. Supply chains are only as strong as their weakest link.

• Finance and cashflow: More expensive borrowing, tougher lending criteria, and greater importance of working capital and credit control.

• Demand falls: Cautious consumers and corporates, especially for discretionary or deferrable spending.

Key opportunities

• Local and resilient supply chains:

  • UK‑based or suppliers based nearer to the UK become more attractive; micro‑manufacturers and niche distributors can win business from larger, slower incumbents.

• Service and advisory niches:

  • Energy efficiency, cost‑reduction, automation, and AI‑enabled productivity services gain traction with other small businesses.

• Government and institutional spend:

  • With new small business procurement targets and a volatile global environment, there’s a stronger policy case to route more spend through UK small businesses.

Small businesses can prepare for these scenarios:

• Cash and credit control

  • Build buffers: Prioritise cash reserves over non‑essential capex.

  • Tighten terms: Negotiate shorter payment terms where possible; chase debt systematically; segment customers by risk.

• Costs and pricing

  • Model scenarios: 10–30% increases in energy, logistics, and key inputs; test what that does to margins.

  • Pre‑plan price rises: Small, staged increases with clear messaging rather than big, sudden jumps.

• Supply chain

  • Map dependencies: Identify anything that ultimately traces back to Gulf energy, petrochemicals, or long shipping routes.

  • Develop alternates: Look for alternative sources of critical items; explore UK/EU suppliers even if the price is slightly higher, if reliability is better.

• Finance

  • Review borrowing now: Especially variable‑rate debt or facilities maturing in the next 12–24 months.

  • Protect your credit score: It becomes a key asset when lenders get more risk averse.

• Market and positioning

  • Resilience is a selling point: Reliable delivery, stable pricing structures, and local sourcing can win customers spooked by disruption.

  • Watch for opportunities: Partnerships, acquisitions, or customer wins as weaker competitors falter.