Factories face soaring costs as Iran war causes supply shocks

The Iran-Israel conflict has triggered severe supply chain disruptions, pushing raw material costs to a four-year high and suppressing demand in European factories. S&P Global’s Eurozone Manufacturing PMI dropped to 51.6 in May, signaling growth but also strain from rising prices and supply bottlenecks linked to the Middle East war. Germany’s manufacturing sector stalled, while France saw its first contraction since November, as energy and commodity prices surge through the Strait of Hormuz, a critical oil and gas route. The European Central Bank is set to raise interest rates this month to curb inflation, which economists expect to remain above its 2% target. British factories raised prices at the fastest rate since June 2022 due to escalating costs. Meanwhile, U.S. manufacturers saw output hit a four-year high, with businesses front-loading orders to avoid shortages, as the Institute for Supply Management’s PMI rose to 54.0—the highest since May 2022. In Asia, China’s private-sector PMI grew for a sixth consecutive month despite rising input costs, though official data showed factory activity stalled in May. Japan’s PMI remained strong at 54.5, though firms reported the sharpest cost increases since September 2022. South Korea’s PMI surged to a five-year high of 54.8, reflecting efforts to secure supplies, while Vietnam, Taiwan, and the Philippines also saw manufacturing growth accelerate. The conflict has strained global energy markets, with warnings from the International Energy Agency, IMF, World Bank, and WTO about potential shortages. While Europe grapples with inflation and supply shocks, the U.S. and Asia are stockpiling goods to mitigate risks, highlighting divergent regional responses to the war’s economic fallout.