Periods of geopolitical stress have a habit of revealing underlying financial weaknesses. The current conflict in the Middle East is unlikely to be an exception.

The immediate transmission channel is energy. Oil prices have become volatile again, and history shows that when energy costs rise sharply, they rarely move in isolation. Transport, freight, insurance, electricity and input costs tend to follow. Inflation becomes harder to extinguish, and interest rates stay higher for longer than base cases assume.

For well-capitalised businesses, this is uncomfortable. For thinly capitalised ones, it is destabilising.

Why this matters now

Many small and medium-sized businesses enter this period with elevated leverage after extended rate tightening, limited ability to pass on higher costs, customers who remain price sensitive, and lenders who are more focused on liquidity than growth.

In such environments, distress does not usually begin with a collapse in demand. It begins with cashflow timing mismatches: receivables stretch, suppliers shorten terms, inventory funding becomes more expensive and working capital buffers erode faster than expected.

Where risk is concentrating 

From a restructuring and insolvency perspective, the most exposed profiles share common traits: high energy or transport intensity with fixed pricing, project-based revenue with delayed progress payments, reliance on trade credit rather than committed facilities, and personal support from directors masking underlying strain.

What markets and lenders tend to do next

When uncertainty rises, capital becomes selective. Financiers typically tighten covenant interpretation, increase reporting requirements, reduce tolerance for declining liquidity and prioritise exit optionality over long-term partnership.

The Director’s dilemma

The law does not require directors to predict the future. It does require them to respond appropriately when risks become foreseeable. In volatile environments, delay narrows options rapidly.

Our perspective

At Charles & Co, we do not view restructuring as failure. We view it as risk management under adversity. Early action preserves options. Late action removes them.

How can Charles & Co. help you?

Our Team with more than 50 years combined experience can help businesses and individuals in a range of challenging and distressed situations. We encourage anyone experiencing financial or operational distress to contact us to discuss your options.