British companies face the latest global energy shock in a significantly weaker financial position than during the Ukraine crisis in 2022, raising fears that the current conflict in the Middle East could trigger a faster and more severe wave of corporate crises.
New data from the Weil European Distress Index shows that financial pressures on European companies had already slipped into “distress territory” before tensions with Iran escalated, leaving companies far less able to absorb another energy-related shock.
Compiled by law firm Weil, Gotshal & Manges, the index tracks the performance of more than 3,750 listed companies across Europe using indicators such as cash flow pressures, leverage and return on capital. Before the current crisis, the value was 2.5, compared to -7 in February 2022, just before the Russian invasion of Ukraine, indicating a significant deterioration in business resilience.
The latest crisis was triggered by the disruption of global oil and gas supplies, particularly through the Strait of Hormuz, a key shipping route through which around a fifth of global energy exports pass. Escalating tensions, including attacks linked to Iranian-backed groups, have raised concerns that alternative routes such as the Red Sea could also become unstable.
As a result, energy prices have risen sharply, with Brent crude rising to nearly $115 a barrel from about $60 at the start of the year. The increase is already reflected in higher costs for companies, from manufacturing to logistics to food production.
Andrew Wilkinson, restructuring partner at Weil, warned that the pace of change was a key risk factor.
“If energy prices remain high and confidence continues to weaken, stress could build faster than in previous cycles,” he said.
Great Britain is considered particularly vulnerable among the major European economies. The index ranks Britain as one of the most stressed markets in Europe after Germany and France, but notes the country is the most exposed to rising borrowing costs.
The rebound in inflation, driven largely by higher energy prices, is expected to limit the Bank of England’s ability to cut interest rates as markets increasingly price in the possibility of further tightening.
Higher interest rates would increase the cost of servicing debt for companies, many of which are already operating with limited financial flexibility after several years of economic turmoil.
Britain’s economic backdrop adds to the concern. Latest data from the Office for National Statistics showed growth stalled in January, highlighting the fragility of the recovery even before the latest energy shock.
At the same time, unemployment has risen to 5.2 percent, the highest level since the beginning of 2021, putting additional pressure on economic dynamics and consumer demand.
The combination of weak growth, rising costs and tighter financing conditions creates a challenging environment for companies, particularly those with high energy risk or significant debt burdens.
The outlook is further clouded by global factors. The OECD has already warned that the UK is likely to suffer the biggest drop in growth among G20 economies because of the conflict, underlining the scale of the challenge.
Rising energy costs are also expected to depress household incomes, reduce consumer spending and increase pressure on businesses even further.
Unlike 2022, when many companies entered the energy crisis with relatively strong balance sheets and access to cheap financing, today’s environment is characterized by higher debt levels and tighter credit conditions.
This leaves companies with fewer options to absorb shocks, increasing the risk of bankruptcies and restructuring measures if conditions continue to deteriorate.
The latest data suggests the current energy crisis could spread faster than previous episodes, with financial stress building faster across the corporate sector.
For the UK, the combination of high energy dependence, rising interest rates and weak growth presents a particularly challenging mix.
As the conflict in the Middle East continues to intensify, companies are facing a period of heightened uncertainty where their resilience will be tested and the margin for error will be significantly reduced.
