Iran Crisis and Russia War Reshape Global Supply Chains

The ongoing fuel crisis triggered by conflict in the Middle East is creating unprecedented pressure on global energy supply chains, with far-reaching implications that extend well beyond the Russia-Ukraine conflict.

As critical infrastructure comes under strain, businesses across Europe are facing a supply chain shock that could surpass the disruptions experienced in 2022.

The urgency of the situation reflects the compounding nature of the crisis. The Russia-Ukraine conflict, now in its fourth year, has already fundamentally reshaped European energy dependencies and supply chain routes.

International partners, particularly European nations heavily reliant on stable energy flows, are increasingly concerned that simultaneous disruptions across multiple theatres could create cascading failures throughout global supply networks.

This has led to intensifying diplomatic pressure on Ukraine to moderate its targeting of Russian energy assets, even as Western military and financial support continues.

Volodymyr Zelensky, Ukraine's President, revealed on 30 March that international partners have urged him to reduce long-range strikes on Russian energy infrastructure. Speaking to journalists via a WhatsApp voice message on 30 March, President Zelensky framed the request within the context of reciprocal action, stating that restraint would require Russia to cease its own attacks on Ukrainian power systems.

"We have received messages from some of our partners asking about how our responses against Russia's oil sector – the energy sector – can be reduced," he said.

"If Russia is ready not to strike Ukraine's energy, then we'll respond by not attacking theirs."

The comments followed Ukraine's military claiming to have carried out ten major attacks on Russian energy infrastructure in March, including a strike on the Ust-Luga oil terminal near St Petersburg. Satellite imagery from 27 March showed significant fire damage at the complex, with President Zelensky claiming 60% of the port's export capacity had been knocked out.

The strikes come at a time when Russia's dependence on oil revenue has become increasingly critical to sustaining its war effort. Energy exports account for approximately 40% of Russia's federal budget, with estimates suggesting that elevated global prices triggered by Middle East instability may have doubled Moscow's earnings from crude sales compared to the previous quarter.

This windfall has effectively insulated Russia from the intended economic impact of Western sanctions, creating a paradoxical situation where Ukraine's allies benefit from stable energy markets while simultaneously funding their adversary's military capabilities through continued energy purchases.

Strait of Hormuz closure disrupts flows

The pressure on President Zelensky to exercise restraint reflects a broader supply chain crisis that has fundamentally altered global energy economics. The effective closure of the Strait of Hormuz following the US-Israeli war on Iran has left approximately 20% of the world's oil and gas supplies stranded, creating severe bottlenecks in critical energy supply routes.

This disruption has transformed Russian crude from a discounted commodity into one that now sometimes commands a premium on global markets, according to analysts. The shift has significant implications for supply chain dependencies, particularly for major importers. China and India accounted for 85% of Russia's oil exports in February, according to data from the Centre for Research on Energy and Clean Air, while the European Union represents the largest market for Russian gas at 34% of total volume and 49% of its LNG exports.

The US Treasury suspended sanctions on Russian crude already at sea in early March in an effort to ease pressure on oil markets, a move that highlights how supply chain constraints are forcing policy adaptations.

The geopolitical calculations driving calls for Ukrainian restraint are complex and reflect competing priorities among Western partners. European nations, particularly Germany and Italy, face domestic political pressure as energy costs squeeze household budgets and industrial competitiveness. Simultaneously, these governments must balance public support for Ukraine's defence against the economic realities of energy security.

The United States, while less directly exposed to European energy market volatility, remains concerned that sustained high prices could undermine global economic stability and weaken the coalition supporting Ukraine. These partners are effectively asking Kyiv to absorb continued attacks on its own infrastructure to preserve broader supply chain stability, a request that underscores the strategic dilemma facing Ukraine's leadership.

President Zelensky acknowledged that while surging prices provide Russia with additional revenue, they also threaten Ukraine's ability to maintain its own supply chains. He told journalists that the Ukrainian army had enough fuel for now, but that he had been seeking to secure additional supplies during a tour of Gulf states, including Saudi Arabia, the UAE, Qatar and Jordan.

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Economic windfall complicates strategic calculations

The current crisis has created an economic windfall for Russia that could fundamentally alter the strategic balance of the conflict. With global benchmark prices elevated and alternative supply routes constrained, Moscow is securing premium prices for crude that was trading at significant discounts in late 2025. This revenue surge is enabling continued military procurement and economic stabilisation despite four years of sanctions.

For Ukraine, the equation is considerably more challenging. The country's domestic energy infrastructure has been systematically targeted throughout the conflict, forcing increased reliance on imported fuels at precisely the moment when global prices have spiked. This places enormous strain on already stretched supply chains supporting both military operations and civilian needs. Ukrainian logistics networks must now source fuel from more distant suppliers, navigate longer and more complex routes and absorb higher costs, all while managing the risk of further Russian strikes on transportation infrastructure and storage facilities.

Corporate supply chains under pressure

European businesses are entering this period of supply chain volatility from a position of notable weakness. According to the latest Weil European Distress Index, corporate distress across Europe at the start of 2026 is already above levels recorded ahead of the 2022 Ukraine war energy crisis.

The retail and consumer goods sector remains the most distressed in Europe, sitting at its highest level on a six-month rolling basis since the global financial crisis. Rising operating costs, wage pressures and softening consumer demand have placed significant strain on supply chain operations throughout the sector.

Infrastructure, utilities and power has now risen to become the third most distressed sector, a shift that carries particular significance given the current supply chain context.

Andrew Wilkinson, Partner and Co-Head of Weil's London Restructuring practice, warns that the pace of deterioration could accelerate rapidly.

"Businesses are entering a period of renewed volatility already under pressure, which leaves far less room to absorb further shocks," he says.

"The key risk is pace. If energy prices remain elevated and confidence continues to weaken, we could see stress build more quickly than in previous cycles – particularly for companies that have already delayed investment or are operating with tighter margins."

System-critical sectors face mounting risks

Neil Devaney, also Partner and Co-Head of Weil's London Restructuring practice, points to risks building in sectors that underpin broader supply chain functionality.

"We are seeing continued pressure in industrials, alongside early signs of stress emerging in infrastructure, utilities and power," he explains.

"This matters because these are capital-intensive, system-critical sectors. If pressure continues to build here, it points to a broader and more entrenched cycle of distress, rather than one confined to consumer-facing industries."

Whether President Zelensky's conditional offer of restraint will gain traction remains uncertain. The Russian government is reportedly considering reintroducing a ban on gas exports, a measure being discussed by Russian Deputy Prime Minister Alexander Novak alongside industry ministries and oil companies.

Russian attacks have left more than a million Ukrainians without electricity and heating this winter and President Zelensky has shown no inclination to offer unilateral concessions. What his disclosure does reveal is that supply chain pressure stemming from the Middle East crisis is being felt across multiple geographies and sectors, with implications that extend far beyond immediate energy markets.