Oil at 200 dollars a barrel: Middle East conflict sends shockwaves through fashion

As the global conflict involving Iran escalates, the prospect of oil prices climbing towards 200 dollars a barrel no longer feels implausible. Fashion businesses across the UK and Europe are once again bracing for volatility, as energy markets react sharply to geopolitical risk. From fibre production and manufacturing to freight costs and consumer confidence, the consequences are reverberating through an industry already operating on thin margins in a fragile global economy.

Oil remains central to the industry, not only for transport, but as a raw material for polyester, nylon and other synthetics that dominate global textile production. A sustained spike at this level raises input costs for mills, dye houses and manufacturers, while pushing up sea freight, air cargo and insurance premiums on key trade routes.

Luxury feels the tourism slowdown

The luxury sector is already exposed. According to reporting by Bloomberg, Swatch Group AG is bracing for prolonged economic upheaval as turmoil in the Middle East hits demand. The company operates more than 200 stores in the region, which, excluding Saudi Arabia, accounted for between 5 and 10 percent of sales last year, chief executive Nick Hayek said in Biel.

While stores remain open, a drop in tourism during the key Ramadan trading period is expected to weigh on performance. Since the conflict began, Swatch shares have fallen around 16 percent, Bloomberg reported. The timing is difficult for the wider luxury sector, given the Middle East had been a relative bright spot amid weak Chinese demand and tariff pressures introduced under US President Donald Trump.

Swatch’s operating margin more than halved in 2025, underscoring sector fragility, even as the group reiterated guidance for improved sales volumes this year.

Compounding pressures

Currency movements are adding strain. The Swiss franc has appreciated roughly 15 percent against the dollar since the start of 2025, a development Hayek warned is weighing on exporters and is being underestimated by the Swiss National Bank. In its annual report, Swatch also criticised tariffs and trade disruption that hurt both the company and the wider industry last year.

For fashion brands more broadly, oil at 200 dollars threatens margin compression across the value chain. Higher energy, logistics and material costs arrive at a moment when consumer spending is already under pressure from inflation.

The escalation highlights fashion’s structural dependence on fossil fuels, both as energy and feedstock. If elevated oil prices persist, the crisis may accelerate shifts towards nearshoring, alternative materials and supply chain diversification. For now, brands are recalibrating forecasts and bracing for a volatile second half of the year.