Iran conflict: What the automotive industry needs to know

03 March 2026

The current conflict in the Middle East could cause significant repercussions for the automotive industry. Dr Christof Engelskirchen, JD Power Europe chief economist and director of professional services, assesses the potential impacts with Tom Hooker, Autovista24 journalist.

As the conflict in Iran rages on, oil and gas prices have soared, the Associated Press confirmed. Meanwhile, shipping has been significantly disrupted around the Strait of Hormuz, as reported by Sky News. In turn, insurance companies are cancelling war risk coverage for vessels in the Gulf, the Guardian revealed.

While tensions are on course to escalate, the automotive sector could be in the firing line. It is heavily exposed to these developments as an energy-intensive industry with globalised supply chains.

This comes as certain markets are already facing affordability pressure. Consequently, higher fuel prices threaten to reshape the powertrain mix in many regions. Yet, if inflation surges and financial conditions become less unfavourable, electric vehicle (EV) demand could face friction.

Furthermore, the industry will need to survive another test of its supply chain resilience. Will the automotive sector suffer through the volatility, or will it rewrite how businesses operate?

Oil impact of Iran conflict

Oil prices have already risen in response to the conflict in the Middle East. How will this impact the automotive industry?

I think the big question that everybody is asking, and nobody has an answer to yet, is how long the conflict will last.

There are talks or opinions about this being relatively short-term. If we are talking about two, three or four weeks of conflict, then the impact will be much smaller than what could happen if this escalates further and builds into a much longer-term conflict.

Does a rise in fuel prices risk dampening vehicle demand, or is the impact likely to reshape the powertrain mix?

The rise in oil prices is a reaction to the reduction of incoming oil. Iran has threatened to attack ships passing through the Strait of Hormuz. What we are seeing is a global increase in prices. It is not presently about the scarcity of oil supply for Europe, because we are mostly purchasing from other sources. At the moment, we see it when we fuel our cars.

I would expect that some people who were thinking about switching from their current internal-combustion engine (ICE) vehicle to an electric vehicle (EV) are now coming to terms with electrification quicker than maybe before the conflict began.

This is because they are possibly getting a bit uneasy with the constant exposure to oil prices.

Electrification effect?

Do you see any potential boost to EV adoption as a behavioural shift, where higher fuel prices change consumer sentiment, rather than a structural tipping point?

If fuel prices come down again in four, five, or six weeks, then it cannot be a structural tipping point.

Yet it does help the agenda of moving mobility towards electrification. This is because it is a relatively small development, but it is very visible. A lot of decisions that are being made are a combination of rational and more emotional purchases.

So, I think it does have an impact. It does have an impact on electrified mobility to make more sense for more individuals because they want to reduce their exposure to these external shocks.

Could higher oil prices also feed into broader inflationary and affordability trends? If finances are stretched, could this also offset any boost to EV uptake?

All the industries that are energy-intensive are more affected by this conflict. So, the steel industry, transport logistics and fuel prices are all affected. Overall, it is not going to have a huge impact on inflation, but it might be noticeable. If inflation rises, then people might attribute some of this to the change in energy costs.

If the conflict only lasts for a couple of weeks, then you will not see it reflected in inflation on a year-on-year comparison. However, if it lasts longer, then it will be reflected in rising consumer prices.

Then, you have several effects that balance each other out. You also could argue that people do not just buy cars because they want to, but because they must, or because now is the right time to do it.

So, it is probably more about delaying a purchase decision rather than choosing one car over the other. Maybe they are delaying the decision, but when they make it, they could still turn more to electrified vehicles. This would be based on the perception that you are less exposed to these external shocks.

Supply chain stress from Iran conflict

How concerned should the automotive industry be about impacts such as shipping disruption, higher freight rates, and rising war-risk insurance premiums?

Supply chains have broken down regularly over the past couple of years. So, all companies of a significant size that have global supply chains have been working on de-risking their supply chains.

I would hypothesise that it is less a question of supply disruptions, but more a question of impacts on price. If you have several sources of a good, and one source is challenged, you may have to pay a little bit more to get what you need from the other source. So, it might have an impact on prices.

However, it really all depends on how long this conflict is going to last. If it lasts for three or four weeks, then it will not have a huge impact.

Which types of automotive business models are most exposed if disruption persists?

I suppose companies that have not done a good job in de-risking their supply chains and creating different sources of the goods that they are sourcing will be more exposed to this current market reaction.

Residual value repercussions

For fleet operators, leasing firms and remarketing managers, could prolonged fuel volatility materially affect residual value (RV) assumptions?

If we believe that this increase in consumer prices driven by the rise in oil prices persists, we could see a little bit more inflation coming out of this. Used-car prices usually benefit from inflation because they will also get more expensive due to inflation.

The only reason why we could see a counter-effect of this on RVs is if there is a resulting economic crisis. For example, if costs rise so much that suddenly people spend less money because they cannot afford to spend it. If that results in an economic crisis, and people delay purchases, then we could see RVs dropping.

Currently, however, there is no indication that this is going to become a fully-fledged economic crisis. Yet it is something we will have to observe very closely.

If this disruption were to persist for several quarters or even years, what steps should automotive industry players prioritise?

I think what they are all currently doing is checking whether the logistical challenges in shipping are going to affect their supply chains and how or whether they need to adjust the sources for some of their goods.

I would expect that this scenario is not surprising. It has been in the making. There have been attacks on Iran before. I expect that companies are looking at their supply chains, seeing where and how they can source differently to address this logistical challenge.