UK small and medium-sized businesses are warning that they are approaching a “tipping point” as global instability linked to the war in Iran drives up costs, disrupts supply chains, and pushes some firms towards potential collapse.
New research suggests seven in ten SMEs believe they could be forced into bankruptcy if current levels of disruption continue, underscoring the growing strain on Britain’s export and import sector.
The findings, published by SME funder Bibby Financial Services, point to mounting financial pressure across firms already grappling with inflation, higher borrowing costs and fragile global demand. Companies surveyed reported average losses of just over £38,000 since the start of the crisis.
Nearly half of respondents said global conflicts now represent the single biggest economic challenge facing their business, a sharp rise compared with last year.
The survey of more than 500 UK importers and exporters highlights how sustained geopolitical instability is increasingly feeding directly into day-to-day trading conditions, rather than remaining a distant macroeconomic concern.
More than half of SMEs said their financial position is now more precarious than it was during the immediate aftermath of Russia’s invasion of Ukraine in 2022, suggesting that successive global shocks are compounding rather than easing.
Michael McGowan, Managing Director at Bibby Foreign Exchange, said: “This is a new era of international trade in which businesses are no longer reacting to isolated shocks; they are operating within a continually volatile landscape shaped by geopolitical instability.
“UK importers and exporters were already operating under intense pressure from inflation, higher interest rates and the long-term effects of Brexit, and the Iran war has amplified every one of those challenges.
“Businesses are facing a stark choice: absorb rising costs and see margins collapse or pass them on and risk losing customers. With nearly a third absorbing the full impact, it’s clear many are taking the hit — but this isn’t sustainable, even in the short-term.”
At the centre of the pressure is a sharp rise in supply chain costs. Over 60 per cent of firms cited increases in shipping, logistics, energy and insurance as key drivers of financial strain.
Disruption to key maritime routes, including those linked to the Strait of Hormuz, has also had a direct impact, with 58 per cent of businesses reporting knock-on effects to operations or costs.
Currency volatility is adding further uncertainty. More than half of respondents cited oil-driven inflation as a major foreign exchange risk, heightening unpredictability in pricing and margins.
For many firms, the response has been a difficult balancing act between absorbing rising costs and passing them on to customers. While some have attempted to protect competitiveness by limiting price rises, others say they are being forced to push increases through to maintain viability.
McGowan added: “The risk environment for UK SMEs trading internationally is deteriorating by the day. Encouragingly, many are not standing still.
“We’re seeing businesses adapt, reviewing supply chains, managing their FX exposure more closely and strengthening working capital.
“In a trading environment characterised by persistent geopolitical disruption and market uncertainty, effective FX management is no longer optional — it’s a critical tool for protecting cashflow and profitability.”
Nearly four in ten businesses said they are splitting the difference, absorbing part of the increase while passing the rest on, while almost a third are absorbing costs entirely — a strategy which respondents say is increasingly unsustainable.
The knock-on effects are already visible in trading behaviour. More than half of exporters expect overseas volumes to fall in the coming months, while a similar proportion say volatility is prompting a renewed focus on domestic markets.
Industry figures say the findings reflect a wider trend in which geopolitical shocks are becoming a structural feature of global trade rather than isolated events.
For many SMEs, the concern is no longer simply managing higher costs, but whether continued disruption will fundamentally reshape their ability to trade internationally at all.
Leave a Comment