DIHK Flash Survey: Middle East Conflict Leads to Significant Cost Increases for Companies

The conflict in the Middle East triggers a noticeable chain reaction in the German economy: 83 percent of companies report negative effects on their business, and in the industrial sector, it rises to 87 percent. This is revealed in a DIHK flash survey of around 2,400 companies.

The focus is on sharply rising costs along the entire value chain. Companies most frequently cite increased freight and transport costs (73 percent), followed by higher energy payments (71 percent) and rising raw material and commodity prices (58 percent). "The cost wave is rolling through the companies," says DIHK Chief Analyst Volker Treier. "The conflict directly impacts production and procurement through energy prices and transport costs."

Volker Treier am Geländer 2022 — Dr. Volker Treier

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This all exacerbates the situation in Germany as a business location. The situation was already difficult for German companies before the Middle East conflict. "The federal government must now counteract with profound reforms to support businesses. Our economy has been in crisis mode for six years, and we must do everything we can to navigate this geopolitical situation. Reducing costs, cutting bureaucracy, speeding up processes – there are many self-inflicted problems that we need to address."

Costs Drive Each Other Up

The situation is escalating, particularly due to the interaction of expensive energy and rising transport costs. Higher fuel prices are making logistics and freight more expensive, while energy prices directly increase production and input costs. Companies report sudden price hikes, daily-changing purchase prices, and the inability to reliably plan. In some cases, existing price agreements are cancelled, or deliveries are only offered under new, poorer conditions. "We are experiencing a chain reaction along the value chain," says Treier. "Energy and logistics are the central levers driving prices up in almost all areas, making planning almost impossible."

Companies are already responding to the cost pressure: 50 percent are trying to pass on the increased costs through higher prices. More than one-third are postponing investments or projects (37 percent). At the same time, 43 percent are expanding their risk management. "When costs rise, and uncertainty increases, many companies have to pull an emergency brake," emphasises Treier. "They adjust prices, postpone investments, and manage risks more closely."

Supply Chains are Slipping

At the same time, disruptions in supply chains are noticeably increasing. Open-ended responses indicate the scale: delayed or stopped shipments, rerouted containers, weeks-long delays, and a lack of transport capacity. In some cases, goods are no longer accepted or can no longer be delivered. Even transport insurers are withdrawing, credit limits are being adjusted, and business negotiations are being suspended. "What happens on the transport routes directly affects the companies," stresses Treier. "Delivery failures, delays, and increasing risks threaten to throw entire operations off course."

Industry Under Particular Pressure – Oil-based Products in Short Supply

Oil-based precursors, in particular, are under pressure: from plastics, films, and insulation materials to chemicals, fuels, and special materials. Companies report material shortages, rationing, and sometimes drastic price increases – sometimes with simultaneously extended delivery times. 16 percent of industrial companies are already reporting concrete shortages of raw materials and intermediate products. "Many key products are directly or indirectly tied to oil prices," explains Treier. "When prices rise there, or supply chains break, it affects entire industries."

In addition to operational problems, there is currently a great deal of fundamental uncertainty. Companies report a lack of planning ability, rising financing costs, and growing reluctance to invest. "We are witnessing a dual shock of rising costs and increasing uncertainty. This is dampening investments and significantly burdening economic development. As long as energy and transport costs remain high and supply chains unstable, the pressure on companies will persist," concludes Treier.