Portuguese industry anticipates “serious” impact on costs. Extended conflict in Iran opens the door to layoffs and closures

The conflict in the Middle East, which enters its 12th day on Wednesday, has led to an escalation in oil prices to levels not seen since 2022, the year marked by the Russian invasion of Ukraine. The situation is putting Portuguese industry on alert, which anticipates a “serious” impact on production costs and warns of the effects on prices and the economy. Depending on the duration of the war, business representatives admit that “more serious” scenarios such as worker layoffs and plant closures are becoming a “real possibility”.

“The resurgence of conflict in the Middle East has generated significant geopolitical and economic instability, with direct and indirect repercussions for Portuguese companies”, the president of the Portuguese Industrial Association (AIP) told ECO. José Eduardo Carvalho points out that “the increase in fuel and natural gas prices has a direct impact on production costs and maritime transport costs, which are already experiencing disruptions and increases”. He warns: “If the conflict in the Middle East continues and costs continue to rise, the most serious scenarios, such as redundancies and closures, become a real possibility”.

If the conflict in the Middle East drags on and costs keep going up, the worst-case scenarios, like layoffs and plant closures, become a real possibility (…). Putting support measures in place and keeping a close eye on the situation are key to reducing the risks of a drop in exports, layoffs, and plant closures if the conflict drags on.

The attacks launched by the US and Israel on Iran led to a series of retaliatory attacks by Tehran and the closure of the Strait of Hormuz, an important maritime channel through which around 20% of the oil consumed globally passes daily. This caused oil and natural gas prices to skyrocket, impacting the outlook for price developments and, consequently, reversing the monetary policy of central banks worldwide.

According to the head of the AIP, “small and medium-sized enterprises (SMEs), with less financial capacity to absorb cost shocks, are the most vulnerable to the risk of insolvency”. Faced with what he describes as a “multifaceted threat to the Portuguese economy and businesses” — the escalation of oil and gas prices, the disruption of supply chains and the consequent increase in production and transport costs, which place significant pressure on the profitability and competitiveness of companies — José Eduardo Carvalho argues that “the implementation of support measures and continuous monitoring of the situation are crucial to mitigate the risks of a drop in exports, layoffs and plant closures if the conflict continues”.

With the sectors most dependent on energy and most exposed to external markets that are “more vulnerable” to the crisis in the Middle East, the AIP leader argues that there are two solutions to mitigate price rises and market pressure: use of fuel reserves and adjustments to the ISP and carbon tax. “Direct government support is also needed for companies most affected by the increase in energy costs, in order to avoid stoppages in activity and the consequent loss of jobs”, he warns.

Rafael Alves Rocha, director-general of the Portuguese Business Confederation (CIP), stresses that “in addition to the direct impact, which will be particularly severe for the most energy-intensive companies, increases in production costs will ultimately be reflected (even if not in full) in prices, giving rise to an inevitable contagion effect on prices in general”, as happened in 2022 when war broke out in Ukraine.

“This is the most serious risk for the Portuguese economy and, in general, for European economies, if the conflict continues with the consequent increase in oil and natural gas prices”, he warns. “We are well aware of the consequences of inflation and the policies that would be necessary to combat it”.

Although he acknowledges that “the extent of the economic impact is still very uncertain, depending on the scale and duration of the conflict”, the CIP’s director-general believes that “scenarios leading to company closures, with repercussions on employment, cannot be ruled out”.

“The increase in operating costs for the business sector will necessarily, sooner or later, have an impact on sales prices, depending on each sector’s ability to absorb such costs in its margins”, considers the Portuguese Business Association (AEP). According to the Porto-based association, “the sectors most affected are likely to be those most dependent on international trade and energy consumption, with manufacturing clearly standing out”.

The increase in operating costs for the business sector will inevitably, sooner or later, be reflected in sales prices, depending on each sector’s ability to absorb these costs in its margins.

“The uncertainty associated with a possible worsening of tensions tends to have more widespread negative effects, namely through the postponement of consumption and investment decisions by economic agents, which could be reflected in lower external demand and, consequently, a slowdown in the Portuguese economy”, the AEP explains.

Ricardo Silva, president of ATP – Associação Têxtil e Vestuário de Portugal (Portuguese Textile and Clothing Association), stresses that “all areas are being affected by increases in natural gas and the impact on electricity”, noting that the direct impact has not yet been seen, which he anticipates will happen “at the end of March”, when the first bills arrive. “These are direct impacts on industries”, he stresses.

But there are also indirect impacts. “Most of the raw material comes from abroad, from Southeast Asia. We will suffer price increases of various kinds. I predict a 10 to 15% increase in prices”, he estimates. The leader of the association representing the textile industry estimates that “if the conflict lasts for five or six weeks, costs will rise very dramatically”.

Asked whether the conflict could precipitate the closure of units, or even lead to employee layoffs, Ricardo Silva does not rule out this scenario: “Even if we forget about the war, we were already in a negative scenario. It is another layer of uncertainty; the situation is not going to improve.”

Regarding the constraints that are holding back the shipment of finished parts, especially from Asia, the ATP official says that the Portuguese textile industry can benefit from “proximity business”. However, this opportunity is insufficient to offset the negative effects of the conflict.

For the metallurgical and metalworking industry, Portugal’s “export champion”, which closed 2025 with a new record of 24.169 billion euros in foreign sales, the current situation is being monitored with “great attention and some apprehension, but not alarm”, says Rafael Campos Pereira.

“The increase in the cost of oil increases the cost of energy and the cost of raw materials”, acknowledges the executive vice-president of the Association of Metallurgical, Metalworking and Related Industries of Portugal (AIMMAP), adding that “companies have some capacity to manage stocks”, so “in the coming months they will not feel the impact” of supply constraints.

Although he admits that “war is always worrying”, Rafael Campos Pereira is hopeful that the conflict will not be long-lasting and praises the resilience of the national metal industry. “Companies in the sector have successfully overcome similar or greater difficulties. A lot has happened, and we have resisted all difficulties and constraints”, he says.

In the case of moulds, one of the sectors heavily affected by the storms that hit the central region of the country, Manuel Oliveira also expresses “some apprehension and expectation” regarding the impact of the conflict on this industry. More than the direct effects on companies, the secretary-general of CEFAMOL – Portuguese Mould Industry Association warns of the “effects at an international level”. The conflict, he points out, “may condition new investments and the launch of new products and, in this case, will affect the activity of the sector” that supplies large multinationals, namely car manufacturers or companies in the value chain.

“It all has to do with the prolongation of this situation”, he notes, adding that “fuels will impact competitiveness”. For Manuel Oliveira, however, the greatest risk is the problems affecting the international supply chains on which the sector depends. “If it affects our customers, it will affect the industry”, he said, stressing that “delays or suspensions in the launch of new products” could be a problem for national mould companies.

Aluminium, which has been severely penalised by the imposition of tariffs by the US, indicates that “all the geopolitical uncertainty generated around the conflict, as well as the sharp rises in the prices of gas and oil and their derivatives, have put enormous stress on industries in the sector”, points out José Dias, president of the Portuguese Aluminium Association (APAL).

All the geopolitical uncertainty generated around the conflict, as well as the sharp rises in the prices of gas and oil and their derivatives, have placed enormous stress on industries in the sector.

As for the main risks, José Dias identifies two: “a potential disruption in the functioning of industries as a result of the interruption of international logistics chains on which we are still very dependent; and a need for exponential increases to cover operating costs, as a result of the high impact that energy costs have on our industry, thus affecting the competitiveness of our products”.

“If this situation continues for a few more weeks, at least a temporary reduction in jobs seems inevitable to me”, he admits. On the other hand, “at the moment, the industry is only reacting to the losses resulting from increases in energy costs”. But if the situation does not change, the industry “will also have to pass on to the market all the costs resulting from other foreseeable effects, such as increased transport costs and productivity losses”, he concludes.