The Iran Conflict Puts New Pressures on Food & Beverage: Report

The war in Iran already is causing small ripples for the North American food & beverage industry. Those ripples could turn into waves if the conflict becomes prolonged.

“For the U.S. food & beverage industry, the Iran conflict matters less because of direct imports from the region and more because of ripple effects along the global value chain, which can restart cost inflation at a moment when industry volumes are fragile and margins remain under pressure,” says a report from Teneo, a global CEO advisory firm.

“The risks are likely to be sequenced rather than simultaneous: fuel, transportation, packaging and selected energy costs may move first, while fertilizer, broader agricultural inputs and consumer demand effects may follow over subsequent months.”

As the conflict in Iran extends with uncertain de-escalation prospects and persistent injection of market volatility, companies in the food & beverage sector are beginning to face important strategic and operational questions, says Teneo:

• What are the potential supply and demand implications of the conflict for our business?
• Which cost impacts move first, can they be mitigated and how quickly will they hit the P&L?
• Are the impacts even across the industry or could they favor some competitors over others?
• Should we pass through higher costs or absorb them to protect volume and share?
• What should our management team and our board be doing now, particularly if the disruption proves more prolonged and volatile than markets currently expect?

The whitepaper focuses on six areas of material impact stemming from the war:

1.Energy Is a Real Risk, but Exposure Is Uneven: Food & beverage is one of the most energy-intensive manufacturing sectors in the country. The March outlook from the U.S. Energy Information Administration (EIA) expects Henry Hub natural gas to remain relatively stable at about $3.76/MM Btu this year. If the conflict remains contained, many plants may see only limited direct impact on natural gas input costs. But if the conflict broadens or persists long enough to create stress in LNG, petrochemical demand or regional gas balances, the pressure on plant conversion costs could intensify quickly.

2. Packaging Also Creates Early Exposures: Packaging is likely to be one of the first non-energy costs to come under pressure. The Gulf plays a central role in the energy and petrochemical system that underpins a large share of global packaging inputs. QatarEnergy’s March 3 decision to halt downstream production, including polymers, methanol, aluminum and urea, shows how quickly regional disruption can reach packagingrelevant materials. The effect, however, is not uniform across packaging substrates.

The most immediate exposure sits in polyolefin-based packaging and PET-linked inputs. PE (polyethylene) is widely used in films, bags and laminates, while PP (polypropylene) is used in tubs, trays, lids and closures, and PET (polyethylene terephthalate) is used in beverage bottles and some thermoforms. The most exposed categories therefore include beverages, dairy, meat, frozen foods, bakery, snacks, sauces and prepared meals.

Aluminum faces a different risk profile. The majority of U.S. aluminum is imported from Canada, but 9% of global aluminum supply comes from the Gulf. Most firms have been unable to ship their aluminum through the Strait of Hormuz, and recent Iranian attacks on Gulf aluminum plants are set to further disrupt the industry. Leaders in the industry now expect that continued disruption could result in aluminum prices being driven above 2022’s record high of $4,073.50 per ton.

3. Transportation Costs Move by Different Mechanisms Across Modes: EIA has raised its 2026 gasoline and diesel forecasts by 14.7% and 20.1%, respectively. Diesel has a faster and more visible pass-through than gasoline into inbound raw materials and supplies, outbound freight, field operations and distributor surcharges. Transportation is the most immediate cost pressure after fuel, but the transmission differs materially by mode.

4. Fertilizers Are a Material Second-Wave Risk, and Crop Calendar Matters: Fertilizer may be the most consequential medium-term cost risk because the Persian Gulf region accounts for about 49% of global urea exports and 30% of global ammonia exports. Urea and ammonia are vital fertilizers for crop growth. By March 27, urea prices had risen nearly 50% from pre-conflict levels. Although the U.S. imports 52% of its fertilizer from Canada and only about 10% from the Middle East, fertilizer markets are globally integrated, so supply disruptions in one region can influence prices and availability elsewhere.

5. Cyber and Physical Security Add Another Layer of Risk: The ongoing conflict in the Middle East is a stark reminder that modern warfare is no longer confined to physical battlefields. The Dept. of Homeland Security and the Cybersecurity and Infrastructure Security Agency both have warned of a heightened threat environment, particularly targeting U.S. businesses and critical infrastructure.

6. Demand Will Remain Under Pressure and Elicit Volume-Margin Tradeoffs: Higher prices at the pump and rising energy bills will add stress to tight household budgets, forcing consumers to reallocate disposable household income in an environment already marked by affordability pressure and fragile sentiment.

Research from the National Bureau of Economic Research shows a consistent pattern: When gasoline prices rise, households cut back on food away from home, curb discretionary purchases, trade down within nondiscretionary categories, seek promotions more aggressively and shift toward more affordable retail channels. Private label, value brands, discount formats and everyday low price strategies tend to perform better.

What food & beverage companies should do now

In an environment where the impact on business performance can be both meaningful and uneven, a passive wait-and-see stance is risky. A better approach is to identify exposures, quantify impacts and define decisions needed under different conditions. A proactive approach can pay dividends.

• Map financial exposure against the P&L.
• Assess competitive dislocation and strategic opportunity.
• Decide where to protect margin and where to protect volume.
• Prepare to take swift action under different scenarios.

See the full report here.