When Brent crude moved past $120 per barrel in the weeks following the escalation
of tensions across the GCC, the market’s attention landed squarely on the number
itself. That’s almost always how it goes with energy, the headline is dramatic and the
longer-term implications tend to get worked through much more slowly. For
businesses, though, it’s usually the slower story that matters more.
The harder question isn’t where oil is trading today but how long elevated energy costs
will remain embedded in manufacturing cost structures and how much of the impact
hasn’t shown up yet.
Why the Full Cost Impact Takes Longer Than Expected
There’s a sequencing pattern to how energy price increases move through supply
chains, and understanding it is useful for any team that’s currently trying to plan.
Energy prices move first. Then utility contracts begin to reprice, often on quarterly or
annual cycles, so the full rate increase takes time to pass through. After that, raw
material costs start to shift, followed eventually by component prices only then do
those increases feed through into finished goods. The European energy crisis of 2022
played out exactly this way and that experience is worth keeping in mind as teams’
model what might happen over the next 12 to 18 months.
Looking at the current situation through that lens, a significant portion of the cost
impact may still be working its way through the chain. Procurement teams who are
only seeing modest changes in their input costs right now should probably not take
that as a signal that they’ve been insulated. The repricing cycle tends to catch up,
particularly when long-term supply contracts come up for renewal.
Many of those contracts, signed during a period of relative stability, are due for
renegotiation in the latter half of 2026. The underlying cost assumptions that shaped
those earlier agreements look quite different from today’s market conditions. When
those conversations happen, companies that haven’t modelled for higher input costs
may find themselves with less negotiating room than expected.
The Sectors Feeling It First and the Ones That Will Feel It Next
Some industries are already absorbing significant pressure. Aluminium smelting,
petrochemicals, fertilisers, plastics, and packaging are among the most energyintensive manufacturing sectors, and cost increases in those areas don’t stay
contained there. They move downstream. Automotive, aerospace, construction
materials, and food production all depend on inputs that originate in these energyheavy sectors, and when costs rise upstream, they eventually arrive further along the
chain.
For procurement teams in downstream sectors, that delay can create a false sense of
stability. Input costs may look manageable for several months, even as the pipeline of
cost increases builds. The businesses that tend to navigate this kind of environment
better are the ones that track upstream cost pressure actively and model forward,
rather than waiting for the increases to appear in their own supplier invoices before
starting to plan.
Europe Is Starting from a More Difficult Position
The pressure is particularly pronounced across European industrial sectors, and there
are a few reasons why the adjustment is likely to be harder there than in some other
regions.
A meaningful portion of Europe’s LNG supply has historically flowed from Qatar
through shipping routes that are now experiencing disruption. That supply question is
landing on an industrial base that, in many cases, hadn’t fully recovered its cost
competitiveness following the 2022 energy crisis. For industries like chemicals, glass,
ceramics, and steel the current environment represents a compounding of pressures
rather than a fresh one.
These sectors share a common characteristic: they rely on consistent, reasonably
affordable energy inputs, and they can’t quickly switch to alternatives. Switching fuel
sources involves infrastructure changes, regulatory processes, and capital investment.
Relocating production is even more complex. That means businesses in these sectors
are largely having to work within a cost environment that has moved faster than their
capacity to adapt to it.
Freight Costs Are Moving in the Same Direction
What makes the current situation more complicated than some previous energy price
cycles is that freight costs are rising alongside energy costs, rather than offsetting
them.
Higher bunker fuel prices are feeding directly into shipping rates. War risk surcharges
are being applied to cargo moving through certain corridors. Vessels are being
rerouted around disrupted areas, which adds transit time and cost. Taken together,
these factors are producing a logistics environment where costs are increasing at both
the input and the distribution stage simultaneously.
For mid-sized manufacturers, this is where the squeeze tends to be sharpest. Larger
companies can often leverage volume to negotiate more favourable terms with both
suppliers and carriers. Smaller producers may not have that option. In these cases,
the choice of logistics partner genuinely matters, more so in terms of whether that
partner can offer flexible routing, consolidate volumes across clients, and provide
visibility that helps businesses make informed decisions in real time.
Supply Chain Geography Is Being Reconsidered
Something that was already quietly underway before the current disruption is now
being discussed more openly: the geographic logic of supply chains is being reexamined.
For several years, nearshoring and regionalisation had been gaining ground as
concepts, partly driven by the disruptions of 2020 and 2021. Rising energy costs are
adding a new dimension to that conversation. When energy becomes a larger
component of total production cost, the economics of manufacturing far from end
markets and moving goods over long distances start to look different. The cost
advantage of distant, lower-cost production regions can narrow when the energy and
logistics components of total delivered cost are recalculated under current conditions.
Some European manufacturers are now actively running those comparisons and
looking at what it would cost to source closer to home versus maintaining existing
arrangements. In several cases, the gap is narrower than it was two or three years
ago. That doesn’t mean every company is going to restructure its supply chain, but it
does mean the analysis is worth doing and doing it with current cost assumptions
rather than historical ones.
Alongside these sourcing decisions, logistics networks are also being rethought.
There’s growing appetite for flexibility, as a genuine operational priority. Rather than
optimising around a single mode or a fixed configuration, more companies are looking
at how they can integrate road, rail, sea, and air freight in ways that allow them to
adapt as conditions shift.
What Planning Should Actually Look Like Right Now
There’s a planning challenge embedded in all this that is worth naming directly: the
range of outcomes over the next 18 months is genuinely wide.
Energy prices could normalise. They could stabilise at an elevated level. They could
move higher if disruption continues or deepens. Building a plan around any single
scenario carries meaningful risk. A more useful approach is to model several
trajectories and then stress-test existing supplier contracts and logistics arrangements
against each of them.
The questions worth working through include: At what energy price level do current
supplier contracts start to reprice, and when? Where in the supply chain is there the
least visibility? Which logistics corridors carry the most concentration risk? How quickly
could sourcing decisions be adjusted if conditions deteriorate further?
Logistics partners that can offer genuine flexibility are likely to become more valuable
in this environment. The value isn’t just in the capacity they can access, but in the
operational depth that allows them to help clients understand their options and
implement changes that work in practice.
The Longer View
It’s worth saying that periods like this, while difficult to manage in real time, have
historically been the moments when supply chain strategy genuinely evolves. The
companies that came out of the 2022 energy crisis in better shape tended to be the
ones that used the disruption to address structural vulnerabilities they had been aware
of for some time — supplier concentration, contract inflexibility, limited visibility into
tier-two and tier-three suppliers.
There’s a version of this current period where something similar happens where
businesses that are forced to re-examine their supply chain geography, their contract
structures, and their logistics arrangements end up with networks that are more
resilient and, eventually, more cost-effective than what they had before.
Getting there isn’t straightforward, and it requires making decisions under uncertainty
with imperfect information. But the teams that are asking the right questions and
building relationships with partners who can move alongside them are the ones who
tend to be better positioned when conditions begin to stabilise.
The headline number will keep moving. What matters more, for the businesses reading
this, is whether the plans they are building right now are robust enough to hold across
more than one version of what comes next.