Yet Another Black Swan Event

I think we were all practically begging, on our knees, hoping that 2026 would be as uneventful as possible. The last five years have seen so much disruption and uncertainty that businesses and people alike yearn for something that resembles a normal year. Yes, there is a great deal of political uncertainty domestically, but even that seems to be run of the mill for the UK now.

Then came another war. And this one looks to be a very significant one, with far-reaching consequences we’re only now starting to digest.

Middle East Black Swan

Definition of a Black Swan event: A black swan event is an extremely rare, unpredictable occurrence that carries a severe, often catastrophic, impact on society or financial markets.

These are meant to be rare instances. But since 2020, we have had the COVID pandemic, which shuttered everything. Russia invaded Ukraine, which again caused massive ripple effects around the world. There was the Israel-Gaza conflict, and all the sub-conflicts that spawned.

Now the US and Israel have gone to war with Iran, which has begun to retaliate against no fewer than ten countries, with potentially more in the firing line. A war that had a timeline of a few weeks looks increasingly likely to expand to months, barring some unexpected intervention or backing down of one side.

That in turn has sent shockwaves through the energy markets. WIT crude now sits at just under $90 a barrel, with Brent over $91 – these are 22% and 24% increases in a week. Tanker traffic through the Straigh of Hormuz is at a standstill, with tankers sat idle, unable to get where they need to go. Refineries in several countries in the region have stopped production as they are unable to store any more owing to not being able to offload their produce.

Qatar has suspended LNG production due to drone attacks from Iran, which supplies 20% of the world’s LNG. Other facilities in other nations have also shut down or limited operations. This has sent the cost of natural gas for the UK, Europe and the US rocketing.

Iran has promised to keep attacking their enemies’ ships in that waterway and continue to target their neighbours with drones aimed at energy facilities.

This means that after finally getting over one cost-of-energy crisis, we’re now staring down the barrel of a new one. We’re not at prices seen at the start of the Russia-Ukraine war. But another week or two of this and we will likely be there.

Consequences

We have been here before, not too long ago. So we know what lies ahead in the coming weeks and months. Rising energy bills, whether it is electricity, gas or fuels such as diesel and petrol. The rising cost of energy a few years ago was a major driver behind the cost-of-living crisis in the UK. This saw the price of food and many other goods rise sharply, severely curtailing the spending power of the general public.

Events like this also generate caution and fear. The pound in your pocket is going to be hit again, that is almost certain at this point. But uncertainty and unease also lead people to be more cautious. And with a significant portion of the British public having links to many of the Middle Eastern countries caught up in this war, we may well be more sensitive to this particular conflict than previous ones.

The rising cost of energy and commodities will affect the economy and businesses as well. It is well known that British companies pay more than most when it comes to energy. It is one of the main reasons why we have such low productivity. Once these rises in gas and oil filter down through the economy, all economic sectors, including our own, should expect to pay more once again.

Other commodities have been affected too. The cost of aluminium has steadily risen every day since the Iran war began. This matters to our sector, and with contracts bought 3-6 months ahead, we may see cost increases in the aluminium fenestration sector towards the end of the summer and into Q3 and Q4.

We are only one week into this war, and with no obvious off-ramps in sight, it looks set to continue for some time. We may have to get used to a world where the cost of energy is again higher than we would like it to be. This is likely going to have to be something we all factor into the costs of our own products and services in the months ahead, once we start to feel these higher prices.

Psychological distraction

Away from the material costs of conflict and how they influence the costs of our own goods, the other factor to consider is the distraction that this new conflict will cause.

Uncertainty is always bad for business. We know this. Wars, however, are especially distracting, given how catastrophic their results are. TV news and social media this week has been awash with this war. Very little else has managed to find any headlines. Even at our place, we have noticed a change in the number of leads and calls compared to previous weeks this year.

Being just one week into a war, we don’t yet know what all the effects of this conflict will have on all of us and our businesses. Only time will cast light on that. But we know from recent past experience what lies ahead. And that is perhaps where we have some sort of front-foot advantage.

COVID and the war in Ukraine educated us about supply chains, consumer buying habits, the need for innovation and new marketing strategies to grab back people’s attention. It does appear that we are going to need to employ those strategies once again. This war is different to the one in Ukraine, and so some of it’s consequences may look slightly different.

But what looks almost certain is that we know energy costs are going to rise, which will affect the cost of windows and doors to the consumer further down the line. So we know if we make moves to mitigate that now, we can perhaps shield ourselves from some of the worst effects.

Although difficult, our sector must step up its efforts on the marketing side, especially to homeowners. Attention will be rightly elsewhere, but people’s homes are still high on their priority list. We must make sure that we give them powerful enough reasons to continue to be confident enough to undertake those renovation plans. Easier said than done, but we are an industry with many tools in which to make that happen.

The idea of a settled year is most likely dead and buried now. But we must remain focused and determined. There are always opportunities, no matter how unstable things seem. Cool heads and clear thinking are the order of the day right now.