Seven in 10 SMEs fear bankruptcy as Iran conflict bites

Seven in 10 UK SMEs trading internationally fear they could face bankruptcy if disruption linked to the Iran conflict continues, according to new research from Bibby Financial Services (BFS).

The findings, published in the lender’s latest Trading Places Report, reveal the growing financial strain being placed on UK importers and exporters as geopolitical tensions disrupt global supply chains and increase operating costs.

The survey of more than 500 UK businesses involved in international trade found that SMEs have lost an average of £38,207 since the conflict began, while almost half (48%) now view global conflicts as the biggest economic challenge facing their business, up 10 percentage points on last year.

More than half of respondents (55%) said their business is now in a more precarious position than when Russia invaded Ukraine in 2022, highlighting the cumulative impact of ongoing geopolitical instability alongside inflationary pressures, higher interest rates and the long-term effects of Brexit.

“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,” he said.

“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.”

Supply chain disruption emerged as the primary source of financial pressure, with 61% of SMEs citing rising shipping, logistics, energy and insurance costs as the biggest contributors to cashflow strain.

The closure and disruption of key global trade routes is also having a significant impact. Nearly three-fifths (58%) of businesses said disruption linked to the Strait of Hormuz had directly affected their operations.

Meanwhile, geopolitical tensions are also creating volatility in currency markets. More than half of respondents (52%) identified oil and energy-driven inflation as their biggest foreign exchange risk, adding further pressure to already squeezed margins.

The report found businesses are increasingly being forced to make difficult decisions about how to manage rising costs. More than half (56%) said budgeting for goods has become more challenging than ever.

While 39% of firms are sharing the burden by absorbing some costs and passing others on to customers, almost a third (29%) are absorbing the full increase themselves in an effort to maintain customer relationships.

The pressure is already beginning to alter trading behaviour. More than half of exporters (54%) expect overseas trading volumes to decline, while 56% said current market volatility is encouraging them to focus more heavily on domestic opportunities.

McGowan warned that the risks facing internationally trading SMEs continue to intensify.

“The risk environment for UK SMEs trading internationally is deteriorating by the day,” he said. “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.”