By Christoph Steitz and Dominique Patton
KLEINKARLBACH, Germany, March 23 (Reuters) – In a spartan office adorned with plastic pots and detergent packaging at German chemical company Gechem, owner Martina Nighswonger feels she’s running out of options.
After years battling the fallout from the global pandemic, the spike in energy costs triggered by Russia’s invasion of Ukraine and then punishing U.S. tariffs, war in the Middle East is ramping up the cost of key raw materials once again.
“There’s just no letup. Every year profits get a little smaller, and eventually they’re gone,” Nighswonger said at the firm’s plant in Kleinkarlbach, where she now holds daily crisis meetings and takes out her frustrations on a punching bag. “It’s exhausting, and you just don’t know what to do anymore.”
Gechem, which mixes chemicals for household cleaning products and bottles brake fluid for the car sector, is at the sharp end of the latest crisis to hit industries in Europe, from chemicals and plastics to metals, textiles and toys.
While the fallout from war in the Gulf is hitting companies worldwide, it’s punching harder in Europe where energy prices are already higher than other regions, according to a dozen executives across Germany, France, Denmark and Switzerland.
Iran’s blockade of the Strait of Hormuz following attacks by Israel and the United States had already hit oil exports before tit-for-tat strikes on huge gas installations in Iran and Qatar last week propelled crude to almost $120 a barrel, double the price at the start of 2026.
Germany’s economy alone could face a 40 billion euro ($46 billion) hit over two years if oil stays at $100 a barrel, according to the IW German Economic Institute, underlining how exposed Europe’s industries have become after years of high energy costs, fierce Chinese competition and plant closures.
Europe’s biggest economy, still reeling from the fallout from the Ukraine war, has some of the highest wholesale power prices worldwide at $132 per megawatt hour (MWh), significantly above $48 per MWh in the United States and also higher than the $120 EU average, according to International Energy Agency data.
“Europe is on the chopping block for this and clearly does not have the margin to take a second energy hit in such a short period of time,” said Ipek Ozkardeskaya, senior analyst at Swiss bank Swissquote. “Germany and the UK look like the most vulnerable to the energy shock.”
FULL CRISIS MODE
Founded in 1861, Gechem is emblematic of Germany’s Mittelstand, a term for the 3.4 million mid-sized firms that employ over 33 million people and generate more than half the economic output in the world’s third largest economy.
Gechem had sales of 46 million euros last year and employs 165 people but has frozen hiring and, for the first time in two decades, is no longer ruling out job cuts, Nighswonger said.
Plans to add a bottling machine and expand its solar power plant, two projects together worth millions of euros, are on hold.
That’s partly because the price of sulfamic acid, which Gechem gets from Asian suppliers and puts in toilet and dishwasher tablets, has risen by a fifth, already adding 300,000 to 400,000 euros to its costs this year, Nighswonger said.
Besides the disruption to oil and gas markets, supplies of fertilisers, sulphur, helium, aluminium, polyethylene and other critical raw materials have been hit by Iran’s chokehold on the Strait of Hormuz. Shipping costs have surged on the back of higher fuel prices as well.
“The situation will hit our small- and medium-sized businesses especially hard, as many of them have no way to switch their supply of raw materials at short notice,” Wolfgang Grosse Entrup, managing director at German chemicals association VCI, said.
Even before the Iran war, Germany’s Mittelstand was suffering from recent crises. According to Germany’s statistics office, 24,064 mostly small and mid-sized firms filed for insolvency in 2025, the highest number since 2014.
The pressure is moving up the value chain of Europe’s 635 billion euro chemicals sector.
Germany’s Lanxess, which had revenue of 5.7 billion euros last year, said on Thursday it would cut 550 jobs and was raising prices as soon as its own costs increased.
“We monitor the situation in the Middle East on a daily basis now,” Lanxess CEO Matthias Zachert told reporters.
Christian Kullmann, CEO of German chemical firm Evonik, said it might be possible to pass some of the additional costs on to customers, but certainly not all.
German adhesives and consumer goods maker Henkel said it was seeing indirect higher prices for raw materials while the biggest chemicals maker of them all, Germany’s BASF, has already raised some prices by more than 30%.
“Our companies are operating in full crisis mode,” VCI’s Grosse Entrup said.
FORCE MAJEURE
Similar strains are spreading across Europe’s industrial heartland.
Peter Voser, chairman of Swiss engineering giant ABB, told Reuters a prolonged Gulf war would hit the global economy severely due to energy shortages and higher prices.
“In the shorter term, companies which use gas as their primary energy source could even shut down their assembly lines, which could contribute to price increases in some sectors,” he said. “But the real global impact will come later. The longer the war goes on, the deeper the cut on the demand side will be.”
In France, Marc-Antoine Blin, president of Elydan, which makes plastic pipes for use in homes and infrastructure, said Asian suppliers, which rely on oil from the Middle East, had declared force majeure, pushing up the price of raw materials.
“We have suppliers in Vietnam and in Thailand who have experienced force majeure and who can no longer ship raw materials,” he said. Elydan has half a dozen factories in Europe and uses 40,000 to 50,000 tonnes of polymers a year.
He said if the conflict grinds on, he would have to pass on higher costs. “I don’t think we can absorb such a shock ourselves by cutting into our margins.”
In Denmark, LEGO is turning to recycled plastic and bio-based plastic made from renewables such as sugarcane to produce its famous toy bricks and cut its use of fossil fuels, but round after round of uncertainty was still a concern.
“Whether it’s COVID, or it’s inflation coming out of that, or it’s Russia attacking Ukraine or, I mean, there’s been so many things – and tariffs last year,” CEO Niels Christiansen told Reuters. “Volatility, of course, is never good.”
DEFAULT RISK
In a sign of how the Gulf crisis is hitting home in other ways, Lanxess said a planned sale of a joint-venture stake had been called off, with one source saying worsening markets following the Iran war had played a part.
Swedish outdoor tech firm Dometic has pulled its dividend, while Thyssenkrupp Steel Europe, the continent’s second biggest steelmaker, said a sustained rise in gas prices would affect production costs.
Germany’s steel lobby WV Stahl warned that further political support was needed to stabilise gas and power prices for one of the continent’s most energy-intense sectors, saying the Iran war had exposed Europe’s “enormous vulnerability”.
French trade association Polyvia, which represents plastics and composites companies, is raising concerns with the government, saying suppliers are using soaring gas costs to renegotiate contracts and push for higher prices – and there’s a growing risk they could cut allocated volumes too.
But European governments have less fiscal room than in 2022 to shield industry with massive subsidies. And if oil heads towards $130 a barrel, there will be a significantly greater risk of default for sectors such as metals and chemicals, said Karl Pettersen, co-head of corporate ratings at Scope Ratings.
“Europe’s competitiveness hinges on improving its supplies of secure, affordable energy,” he said.
($1 = 0.8687 euros)
(Reporting by Christoph Steitz, Frank Simon, Patricia Weiss and Sabine Wollrab in Frankfurt, Matthias Inverardi and Tom Kaeckenhoff in Duesseldorf, Dominique Patton and America Hernandez in Paris, John Revill in Zurich, Ozan Ergenay and Bartosz Dabrowski in Gdansk, Nina Chestney in London and Stine Jacobsen in Copenhagen; Editing by Adam Jourdan, Josephine Mason and David Clarke)
Comments