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
Iran War Pushes Europe's Industrial Sector to Breaking Point Amid Energy Crisis
Impact of the Iran Conflict on Europe's Industrial and Energy Sectors
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.
Energy Price Surge and Economic Vulnerability
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."
Case Study: Gechem and Germany's Mittelstand
Full Crisis Mode for Small and Medium Enterprises
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.
Pressure on the Chemicals Sector Value Chain
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 and Broader Industrial Impact
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."
Supply Chain Disruptions in France and Beyond
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.
