Companies Are Feeling the Business Impact of Conflict in the Middle East

Whether it’s sneakers or social media, few corners of business have been completely unscathed by the ongoing violence in the Middle East.

In addition to its most significant effect, human suffering and loss of life, the war between Israel and Hamas has affected businesses thousands of miles from the fighting. Recent earnings calls from major companies are full of references to the conflict’s effects.

Businesses began feeling the international trade impacts in October when Houthi Rebels started attacking ships in the Red Sea in support of the Palestinians. The attacks have disrupted shipping in a waterway that normally carries about 12% of global trade, and analysts have warned that the war could stoke inflation if it continues for an extended period.

Here’s what business leaders had to say about how the war is affecting their businesses in the latest rounds of earnings calls and communications with investors:

Social media platform Snapchat said conflict in the Middle East poses a “headwind” to its digital advertising revenue in the fourth quarter, dragging down year-over-year growth by about 2 percentage points, the company said in a letter to investors this week. That contributed to a plunge in Snap stock Wednesday.

The online retail giant is keeping an eye on the situation, although in their earnings call last week, executives said it hasn’t hurt the company yet.

“We are mindful of the geopolitical issues around the world, especially… in the supply chain and how that might impact shipments both to the U.S. and to Europe,” Chief Financial Officer Brian Olsavsky said in response to a question from an analyst. “We’re just working very hard to make that not back up on customers, and we’ll continue to work on that. It’s not a material impact estimated in our guidance in Q1.”

The owner of KFC, Pizza Hut, and Taco Bell said it was losing sales in the Middle East and predominantly Muslim countries elsewhere in the world. People in several countries have boycotted American businesses in protest of U.S. support of Israel.

“During the quarter, top-line sales were impacted by the conflict in the Middle East region with varying degrees of impact across markets in the Middle East, Malaysia, and Indonesia,” CEO David Gibbs said in an earnings call this week. “This represented a low single-digit headwind to Yum!’s overall fourth-quarter same-store sales growth. This trend has continued into the first quarter, and we expect the sales impact to decrease over the course of 2024.”

Disruptions in the Red Sea were unsurprisingly a top concern for the Belgian oil shipping company.

“We cannot have this call without mentioning the Red Sea,”  CEO Alexander Saverys said in an earnings call last week. “We were one of the very first companies to avoid the area after the Houthi rebel attacks on the merchant shipping. We have not changed our viewpoint so far. So, we will continue until further notice to go and choose other routes than through the Red Sea, until that situation has become safer for our crew and for our ships.

“The impact of the diversions can be seen every day in shipping in general and I would say crude oil and product tanker shipping in specific. It is indeed creating more demand for ships because of the longer ton miles and we’re expecting the situation unfortunately to last at least for the next couple of weeks.”

Energy giant Shell’s liquified natural gas business is working around the Red Sea disruptions, CEO Wael Sawan said in an earnings call last week discussing the company’s better-than-expected quarterly results.

“By and large we are not seeing massive amounts of disruption yet to LNG flows because of the reality that, in particular with a portfolio like ours that’s blessed with supply points on either side of the Red Sea as well as on demand points, we are able to optimize and do swaps across the portfolio,” he said.

Shipping disruptions—including delays at the Panama Canal because of low water levels— figured heavily when the international logistics company reported disappointing earnings in the last quarter earlier this month.

“In the wake of the ongoing conflict in the Red Sea and low water levels in the Panama Canal, global supply chains are facing transit interruptions and vessel rerouting which is causing extended transit times and putting a strain on global ocean capacity,” CEO Dave Bozeman said. “While the Asia to Europe trade lane has been most affected, the impact is extending to other lanes as carriers adjust routes based on shipping demand.

“As a result, ocean rates have increased sharply in Q1 on several trade lanes, including Asia to Europe and Asia to North America. While the Red Sea disruption continues without any clear timeline of when it will be resolved, the strain on capacity and the elevated spot rates are expected to continue through at least the Chinese New Year,” he said.

The coffee chain has been targeted by supporters of both Israel and Palestine, hurting its business in the Middle East and the U.S.

“First, we saw a negative impact to our business in the Middle East. Second, events in the Middle East also had an impact in the U.S., driven by misperceptions about our position,” CEO Laxman Narasimhan said in its most recent earnings call on Jan. 30. “Our most loyal customers remain loyal and in fact, increased their frequency of spend in the quarter. But we did see a softening of US traffic. Specifically, our occasional U.S. customers, who tend to visit at the afternoon, came in less frequently.”

McDonald’s, which has been targeted by boycotts for its perceived support of Israel, has seen reduced sales at restaurants in predominantly Muslim areas, the company said in its most recent earnings report last week.

“The most pronounced impact that we’re seeing is in the Middle East and in Muslim countries like Indonesia and Malaysia.” CEO Chris Kempczinski said in an earnings call this week.

The flower delivery service could face increased shipping costs once its current shipping contracts expire, CFO William Shea said in an earnings call last week.

“The bigger unknown is how long the issues in the Red Sea persist and whether that affects future negotiations and next year’s holiday season,” he said. “We begin negotiations for those rates in a few months and a lot will depend on what happens in that area.”

Adidas (ADDYY)

In its fourth-quarter earnings call, executives at the German athletic apparel giant said the troubles in the Red Sea had delayed shipments by about three weeks, and were causing delivery issues, especially in Europe. On top of that, the price of shipping goods was “exploding,” CEO Bjørn Gulden said.

Gulden, however, downplayed its significance in the overall scheme of things.

“It’s not a huge problem,” he said.

Executives spent much more time discussing how they sold off unwanted inventory from their ill-fated partnership with Kanye West.