A prolonged Middle East conflict would hit some European sectors harder than others, with a poll of analysts at Citi revealing most concerns about metals and mining, airlines, chemicals and parts of industrials as the areas most exposed to disrupted supply chains and higher input costs.
Broad-based shortages across Europe are not the main risk yet, the bank said, but more disruption to commodity flows, especially if the Strait of Hormuz remains effectively closed.
Analysts said margins may become harder to protect if higher energy and raw material prices persist.
Metals and mining stands out as one of the clearest pressure points. Citi’s sector analysts said 9-10% of global aluminium production is in the Gulf region and warned that once aluminium smelters shut down they can take 3-6 months to restart, making any supply shock potentially long-lasting. They also highlighted sulphur as a concern for copper and nickel refining, with the Middle East accounting for close to a quarter to a third of supply, depending on the measure used in the note.
Airlines are also another obviously vulnerable corner of the market, with jet fuel the key issue. Analysts warned that if fuel prices remain at current levels, most carriers would find it "extremely difficult to protect margins". The bank added that while fares tend to rise with fuel, airlines may struggle to pass on all of the increase because supply constraints could limit pricing power.
Chemicals analysts said spot prices in Asia have already risen about 15% week on week, driven by higher oil and gas prices. They do not expect major shortages in the near term because inventories and monthly contracts provide some buffer, but said reduced supply would add support to already elevated prices.
They also flagged fertilisers as an inflation risk, noting the Middle East accounts for roughly 35% of seaborne urea trade. Fertiliser companies CF Industries and Mosaic Co were up over 5.5% on Wednesday.
In industrials, Citi said electrical equipment groups face vulnerability through the key materials of copper, aluminium and other raw materials. "The sector has a good track record of passing through price, but in a period where volumes of electrification inputs are growing significantly due to AI/datacentre investments, any risk to supply growth in copper and aluminium in particular could emerge as a growth concern."
For autos, it sees higher raw material and energy costs as the main risk, though it thinks the direct hit from weaker Middle East car demand is likely to be limited.
The bank was more measured on some other sectors, with pharma seen as facing only limited cost pressure.
As for insurance, the industry has "proven quite adept at passing these costs onto customers and maintaining technical margins and we would expect this to continue".
In shipping, analysts said the bigger issue is a longer-than-expected closure of the Red Sea rather than Hormuz itself, with freight rates already rising, as flagged by maritime broker Clarkson this week.
Clearly, some sectors like oil & gas face an upside from higher oil prices.
While not a direct supply-chain story, geopolitical tensions typically support defence spending expectations, which can benefit defence contractors. As products tend to be highly engineered, "raw material and energy tend to make a small proportion of the overall cost, limiting the impact of raw material and energy inflation". Citi also adds that the sector typically gets priority access to scarce materials.