Middle East Conflict Starts to Hurt Corporate Earnings Outlooks

Companies’ efforts to grow their businesses can be compromised when factors outside their control start to adversely impact their financial performance. Market conditions at a sector- or even broader macro-level can seriously erode earnings potential – and with it, share price performance. Oftentimes these adverse effects are fleeting, and more normal trading conditions quickly return. However, on rare occasions negative macro-economic conditions, which are sometimes underpinned by geopolitical developments, are longer-lived.

Such a scenario is unfolding at the moment, as a trickle of larger ASX-listed companies have started to acknowledge the likely adverse economic effects of the current Middle East conflict on their earnings over coming months. More often than not, these detrimental effects have been largely driven by increased transport costs, as global prices for oil and other energy commodity now suffering supply constraints trend higher. Other times, they have flowed from companies having business operations in the Middle East.

The higher energy prices now being experienced is a serious challenge for companies, households, and economic policy makers. If these elevated prices remain in place for an extended period, they will inevitably have adverse impacts on broader inflation measures, and other key economic measures like standard of living and corporate profitability.

The companies now alerting the market to the risk to earnings flowing from any extended Middle East conflict operate across a number of industrial sectors.

In the Financials sector, Big-4 bank National Australia Bank (ASX:NAB) recently warned investors about the adverse impact of market volatility caused by the conflict in the Middle East. This volatility uptick has prompted the bank to undertake a review of its credit provisioning and capital settings to better reflect the risks now inherent in its business. A key outcome of this review was an increase in the bank’s forward looking collective provisions (part of its provisions for potential bad debts).

Qube Logistics (ASX:QUB) recently issued a cautious update on the impact of both the Middle East conflict and recent adverse weather  events on its operations, and what they meant for the Company’s FY26 earnings outlook.

The Company said that based on recent trading and the current outlook, it currently expects the Middle East conflict to trim its previously expected FY26 EBITA by $10-$20 million. This slide was driven by higher fuel costs due to timing lags in recovering these costs from customers, lower agricultural volumes due to higher shipping costs and the inability of vessels to reach key Middle East markets, and lower forestry exports due to higher shipping costs.

The largest earnings impact is currently expected to be in Qube’s Logistics & Infrastructure business unit. with a more limited impact on the Ports & Bulk business unit.

On a more positive note, Qube has robust supply agreements with two of Australia’s major fuel suppliers and has continued to receive fuel supplies in line with normal trading volumes. It also has strong contractual protections in place across most of its operations, as well as effective commercial levers that are expected to enable the business to largely mitigate current challenges.

Services group Worley (ASX:WOR) recently warned that the extended duration of the current Middle East conflict and continued uncertainty attached to it had resulted in further delays to existing projects, and the commencement and award of new projects in the region. Worley added that this adverse impact extended to services it provided to Middle East projects from its offices outside the latter region.

At this point in time, Worley estimates that the Middle East conflict will reduce its FY26 underlying EBITA by around $30-40 million. It stressed that actual FY26 outcomes were currently captive to multiple unknowns, including the duration of the conflict, the disruption to supply chains it causes, contract timing and the pace of any recovery if/when the conflict ends.

Packaging solutions group Orora (ASX:ORA) warned that the euro-denominated FY26 underlying EBIT for its Saverglass business was now expected to be approximately €63m to €68m (excluding direct impacts of the Middle East conflict), materially below its prior guidance of broadly in line with FY25 EBIT of €79.2m. The direct impacts excluded from the abovementioned underlying EBIT number include a range of operational and financial drags relating to the Company’s Ras al Khaimah facility in the United Arab Emirates.

It is reasonable to assume that further ASX-listed companies will issue Middle East conflict-related profit warnings over coming weeks if the latter geopolitical event remains unresolved. This as the impact the conflict has on energy commodity supply levels, inflation as well household and corporate budgets becomes more problematic.