The impact of the Iran conflict on SMEs: Rising costs, disrupted trade, and tighter finance

Geopolitical shocks are now feeding through to small and medium-sized enterprises (SMEs) faster than ever before. As operating across global supply chains, customer bases, and supplier networks becomes the norm for smaller businesses, disruption due to external events – such as the conflict in the Middle East – is no longer an unfamiliar thought. In fact, such events come with direct commercial risks impacting cash conversion cycles.

The conflict in Iran has escalated far beyond initial expectations, paralysing trade flows in the Gulf and sending shockwaves across global markets. While larger businesses may have buffers in place to absorb this volatility, SMEs remain exposed. 

The disruption in the Strait of Hormuz has driven a surge in oil and energy prices worldwide, which is already translating into higher costs across supply chains. This energy crisis is bleeding into transport and logistics, input costs, and supplier pricing simultaneously – all of which are reducing profitability and squeezing margins. 

Logistics and liquidity

Freight rerouting around higher-risk shipping corridors is increasing both cost and complexity across global supply chains. As transit routes lengthen and trade faces congestion and delays, businesses reliant on Asia, Europe, and Middle East trade corridors are particularly affected. 

Delivery times extend, goods remain in transit for longer, and SMEs are increasingly seeing cash conversion cycles lengthen. Inventory is tied up for longer periods, payments are delayed, and liquidity becomes more stretched, just as input costs are rising.

Unlike larger firms, SMEs typically lack the internal liquidity buffers and treasury infrastructure needed to absorb these multiple, simultaneous pressures. 

In response, there is growing demand for trade finance instruments, including receivables and inventory financing, short-term finance lines, and working capital solutions. These tools can bridge timing mismatches between outgoing costs and incoming revenue, especially in sectors that are exposed to physical cross-border trade.

Financing constraints

Rising energy-driven inflation risks have also reinforced expectations that interest rates may remain higher for longer, creating a more challenging backdrop for borrowing and adding further pressure to financing conditions. 

At the same time, foreign exchange (FX) volatility is increasing as investors respond to shifting geopolitical tensions and changing inflation expectations. For internationally active SMEs, this can create serious financial strain, as fluctuations in exchange rates directly affect the cost of paying overseas suppliers, the value of foreign revenues, and overall cash flow. 

In volatile market conditions, a deal that initially appeared commercially viable can quickly become loss-making by the time payment is due, particularly for businesses operating on tight margins or without hedging protections in place.

Cross-border payment structures that worked fine 12 months ago are now exposing businesses to meaningful currency risk. Forward contracts and multi-currency accounts are no longer niche treasury tools: for any SME with material overseas suppliers or customer exposure, they are becoming basic risk hygiene.

The conflict is quietly tightening access to credit; marine insurance costs are up, counterparty risk is harder to price, and traditional banks are responding predictably: higher collateral, tighter terms, more selective appetite in trade-exposed sectors. SMEs who assumed their lending relationships were stable should be pressure-testing that assumption now.

For SMEs, resilience can no longer be built on the assumption of stability. It now depends on the ability to adapt across operations, cash flow, and currency exposure, supported by funding structures designed for change rather than steady conditions.

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The conflict has cooled somewhat in recent weeks, but peace talks are not delivering a resolution. The longer-term risk is that these pressures become structural. Supply chain rerouting, elevated risk premiums, and fragmented trade routes tend to outlast the crises that create them, and this is all unfolding against a wider backdrop of US tariffs and deepening geopolitical fragmentation. 

Instability is not a temporary condition to be managed through. It is the operating environment.

Agility, rather than scale, is the differentiator now. That means maintaining access to flexible financing, keeping a tight grip on cash flow, and treating currency and counterparty risk as operational issues rather than treasury ones.