Retail firms are warning that the conflict in the Middle East is driving up costs and could lead to price hikes if the war continues beyond the short term. 

Instability in the Middle East region will not only restrain growth in the region but is also likely to have a knock-on effect on costs, selling prices, and consumer demand in the rest of the business, warned British retailer Next on Thursday. 

The company has accounted for £15 million ($20 million) of additional costs likely to arise from the conflict, such as fuel and air freight, assuming the disruption lasts for three months. Increased costs will not affect guidance as they have been offset by savings elsewhere, it added.

“Beyond the next three months, if we see these costs persist, then we will begin to pass costs through as higher pricing,” the company said early on Thursday as it reported results for the fiscal year ending January. The Middle East represents about 6% of Next’s total turnover. 

An extended war in the Gulf region could mean a double whammy for retailers as it may increase inflationary pressures and disrupt supply chains, leading to an overall higher cost base. It could also hurt demand as consumers are increasingly squeezed by the increased cost of living, resulting in less spending on discretionary items. 

The Iran war and effective closure of the Strait of Hormuz have sent oil and gas prices soaring since the first strikes on Feb. 28, and has upended inflation forecasts in Europe and beyond. 

Companies’ price-hike expectations and wages for new hires were some of the key inflation indicators that the European Central Bank will monitor, its Chief Economist Philip Lane said on Wednesday.

H&M said Thursday that “current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure.”

H&M early Thursday reported first-quarter local currency sales that declined by 1%, but good cost control helped the company beat expectations on profitability, the company said. It was “a quarter marked by cautious consumption and large currency translation effects,” it said.

Shares fell 2.2% in late morning trading, partially paring earlier losses. 

Next shares, meanwhile, rose 5% after the London-listed fashion brand bumped up its pretax profit guidance by £8 million to £1.21 billion for the upcoming year.

“We see this update as reassuring on the strong UK trading and implied ability to pass-through costs, vs a well-known [Middle East] disruption,” Jefferies analysts said about Next’s print.

The U.S. is preparing to send thousands more troops to the Middle East, prompting speculation about a ground attack on Iran amid conflicting accounts of peace talks.

The Pentagon is reportedly preparing to send about 3,000 troops from the Army’s 82nd Airborne Division to the Middle East, alongside two Marine Expeditionary Units, to assist military operations in Iran. CNBC has contacted the White House and is awaiting a response.

Military experts said that the number of additional troops being deployed to the region appears to be consistent with plans for discrete and time-limited operations — rather than a sustained ground campaign.

It puts two strategic Iranian islands in the spotlight and raises questions about a potential move to seize the Islamic Republic’s nuclear materials.

Retired U.S. Army Lieutenant Colonel Daniel Davis estimated that there were likely only around 4,000 to 5,000 “trigger pullers” or ground troops.

“That is enough to seize a small target for a period of time. You’ve got to understand, even the 82nd Airborne Division, it’s an immediate reaction force to provide very quick reaction on the ground but only in advance of something bigger coming in behind that,” Davis, a senior fellow and military expert at Defense Priorities, told CNBC’s “Squawk Box Asia” on Thursday.

“I have seen no evidence that any kind of a force of size has been even considered, much less alerted, prepared, equipped, trained up that you would need to go … That takes months of time to do.”

Davis said that, from the limited number of ground troops being deployed, there were three possibilities that the U.S. could theoretically execute.

The first possibility is seizing Qeshm Island, which sits “in the horseshoe bend of the Strait of Hormuz,” Davis said.

Qeshm Island, off Iran’s southern coast, is the largest island in the Persian Gulf. Located near the strategically vital Strait of Hormuz, the arrow-shaped island has emerged as a potential U.S. target amid reports that anti-ship missiles, mines, drones and attack craft are being kept there in underground tunnels.

“All enemy movements are under the full surveillance of our armed forces,” Iran’s Speaker of Parliament Mohammad-Bagher Ghalibaf said on X, according to a Google translation.

“If they step out of line, all the vital infrastructure of that regional country will, without restriction, become the target of relentless attacks,” he added.

Ruben Stewart, senior fellow for land warfare at the International Institute for Strategic Studies (IISS) think tank, said the number of U.S. forces preparing to be deployed was not consistent with a sustained ground campaign.

“What is notably absent are the heavy armoured units, logistics depth, and command structures required for a prolonged land war. In practical terms, this is a force that can act quickly and selectively, but not one that could sustain operations deep inside Iran or over an extended period,” Stewart told CNBC by email.

“Seizing Kharg Island is technically feasible but escalatory, given its centrality to Iran’s oil exports. By contrast, securing Iran’s nuclear material would be the least realistic with this force as it would require a far larger, sustained ground presence,” he added.

The relatively limited level of deployment was perhaps best understood as a tool of coercive leverage, Stewart said, as U.S. President Donald Trump’s administration seeks to increase its bargaining power and signal that it has options if diplomacy fails.

The White House has said that Trump has been engaged in “productive” talks with Iran over the last three days, adding that the military operation in Iran was “ahead of schedule.”

Iran, however, has repeatedly denied holding talks with Washington.

The U.S. Postal Service on Wednesday said it is seeking to impose a temporary 8% fuel surcharge for package and express mail deliveries to deal with rising transportation costs, which include higher oil prices as a result of the Iran war.

If approved by the Postal Regulatory Commission, the surcharge would take effect April 26 and remain in place until Jan. 17, 2027, the Postal Service said in a notice on its website.

The 8% surcharge would apply to postage on Priority Mail Express, Priority Mail, USPS Ground Advantage, and Parcel Select products. First-class stamps and other mail services would not be affected.

Oil prices have jumped more than 40% since Feb. 28, when the United States and Israel attacked Iran.

“This temporary price adjustment will provide needed flexibility for the Postal Service by helping to ensure that the actual costs of doing business are covered, as required by Congress,” the Postal Service said in its announcement.

“Transportation costs have been increasing, and our competitors have reacted with a number of surcharges,” the notice said.

“We have steadfastly avoided surcharges and this charge is less than one-third of what our competitors charge for fuel alone, so even with this change, the Postal Service continues to offer great value in shipping with some of the lowest rates in the industrialized world.”

CNBC has reached out to the Postal Regulatory Commission for comment on the Postal Service’s request.

Goldman Sachs’ senior chairman and ex-CEO Lloyd Blankfein has warned that the damage from the Iran war “is going to last,” even if there were “a resolution tomorrow” — and urged investors to prioritize contingency planning amid the turmoil.

Speaking with CNBC’s Steve Sedgwick on Wednesday, Blankfein suggested that certain parts of the market may be too complacent in their approach to the conflict, adding that it’s equally dangerous to trade on the basis that “all will be resolved” as it is to say it will “never be resolved.”

“People know that, even if it stopped tomorrow, there’s so much damage to the infrastructure that the stress is going to last longer anyway, even if there was a resolution tomorrow, and there’s no reason to think there’s a resolution tomorrow,” he said of the Middle East war.

U.S. and Israeli strikes on Iran on Feb. 28 escalated into a regional war in which Iran has targeted energy infrastructure in neighboring countries, and traffic through the Strait of Hormuz, a crucial waterway for oil and gas, has been severely disrupted.

Blankfein pointed to the wild swings in energy markets in recent weeks as investors have sought to navigate the fallout from the conflict and price in the lasting impact from disrupted global oil supplies. Against this backdrop, he said investors should eschew conviction trades in favor of a more cautious approach, and “be very fleet of foot and very protective” of their positions.

“You could put on hedges, and those hedges could be worthless tomorrow, if things go another way,” Blankfein said. “I think people should be good contingency planners at this time.”

In a wide-ranging interview, Blankfein — who as CEO steered Goldman through the 2008 Global Financial Crisis — also reflected on the broader fiscal picture in the U.S. as well as potential risks arising from private markets.

He said the investment backdrop before the war in Iran was “more tailwinds than headwinds,” pointing to solid growth and a lower interest rate trajectory. “That’s all been made secondary or tertiary to what’s going on in the war and the price of energy,” he said.

Meanwhile, he said questions remain over the accuracy of valuation marks in private market funds’ portfolios, adding that assets have not been tested as equity markets have risen.

“There has to be a reckoning — we haven’t had one, and the longer between reckonings, the worse it could potentially be,” he added.

A trio of European energy CEOs has sounded a warning over energy supplies, amid the ongoing conflict in Iran and restricted access through the strategically vital Strait of Hormuz.

Amid volatile trade, crude prices have surged around 40% in recent weeks, at one point approaching $120 a barrel as investors raised concerns over a potential lack of supply.

Those concerns have been felt particularly in Asian countries so far, with the Philippines announcing an energy emergency, while South Korea says it is preparing for “worst-case scenarios.”

Japan’s Prime Minister Sanae Takaichi has asked the International Energy Agency to consider an additional release from global crude stockpiles, with the global energy watchdog having already coordinated the release of 400 million barrels of oil amongst member countries.

Japan will release national stockpiles on Thursday, with Takaichi confirming Tokyo will access the IEA stockpiles toward the end of the month.

But now there are fears the supply concerns will move westward.

“South Asia was first to get that brunt. That’s moved to Southeast Asia, Northeast Asia and then more so into Europe as we get into April,” Shell CEO Wael Sawan said at CERAWeek in Houston, Texas.

Sawan warned governments not to take actions that could magnify the impact of supply disruptions, adding that you cannot have “national security without energy security.”

Governments across Europe have already started introducing measures to shield households from rising energy costs.

Slovenia became the first country in Europe to introduce fuel rationing, Spain approved a 5-billion-euro ($5.8 billion) aid package, which included tax reductions on electricity and gas, as well as subsidies for transport operators, farmers and for the purchase of fertilizers.

European Union leaders have also discussed temporary measures to mitigate the impact of rising energy prices.

TotalEnergies CEO Patrick Pouyanné said the current oil products market is “dislocated,” telling CNBC that this is why “you see the impact in many countries, in Europe, on the gasoline price, diesel price, people being very unhappy.”

Federal Reserve Chair Jerome Powell last week pushed back when asked whether stagflation posed a threat to the U.S. economy. His successor may face a tougher challenge, as Wall Street forecasters raise their expectations of recession, brought on in part by the Iran war and potential for higher prices.

In recent days, economists have pulled up their risk assessments of a U.S. contraction amid heightened uncertainty over geopolitical risk and a labor market that for the past year has shown strains over the past year.

Moody’s Analytics’ model has raised its recession outlook for the next 12 months to 48.6%. Goldman Sachs boosted its estimate to 30%. Wilmington Trust has the odds at 45%, while EY Parthenon has it at 40%, with the caveat that “those odds could rapidly rise in the event of a more prolonged or severe Middle East conflict.”

In normal times, the risk for a recession in any given 12-months span is around 20%. So while the current predictions are hardly certainties, they signify elevated risk.

The situation poses a tough challenge for policymakers who are being asked to balance threats to the labor market against sticky inflation.

“I’m concerned recession risks are uncomfortably high and on the rise,” said Mark Zandi, chief economist at Moody’s Analytics. “Recession is a real threat here.”

Talk of an economic contraction has accelerated as the war with Iran has dragged on.

An oil shock has preceded virtually every recession the U.S. has seen since the Great Depression, save for the Covid pandemic. Prices at the pump have risen by $1.02 a gallon over the past month, an increase of 35%, according to AAA.

While economists still debate the pass-through impact from higher energy, the trend has held.

“The negative consequences of higher oil prices happen first and fast,” Zandi said. “If oil prices stay kind of where they are through Memorial Day, certainly through the end of the second quarter, that’ll push us into recession.”

Like his fellow forecasters, Zandi said his “baseline” expectation is that the warring sides find a diplomatic off-ramp, oil flows again through the Strait of Hormuz and the economy can avoid a worst-case scenario.

To be sure, economists as a lot are negative and subject to the old trope about predicting nine of the last five recessions. Markets also have been wrong about where the economy is headed. A portion of the yield curve — or the spread between various Treasury maturities — most closely watched by the Fed has sent repeated false recession signals for much of the past 3½ years.

But the threat of a prolonged war, pressure on a consumer who drives more than two-thirds of all growth, and a labor market that created virtually no jobs in 2025 collectively raises the risk that the expansion could falter.

“That path through is increasingly narrow, and it’s getting increasingly difficult to see the other side,” Zandi said.

Consumers also are pessimistic. Consumer site NerdWallet said its March survey showed 65% of respondents expect a recession in the next 12 months, up 6 percentage points from the month before.

Beyond energy prices, economists say the labor market is a key pressure point.

The U.S. economy created just 116,000 jobs for all of 2025 and lost 92,000 in February. While the unemployment rate has held steady at 4.4%, that’s largely been because of a dearth of firing rather than a burst in hiring.

Indeed, stocks have had a rough ride during the war. The Dow Jones Industrial Average has fallen more than 5% during the hostilities — important because consumer spending and sentiment have been supported by higher-income households benefiting most from rising equity prices.

Gross domestic product is on track to grow at a 2% pace in the first quarter, according to the Atlanta Fed’s GDPNow tracker of rolling data. However, that’s coming off an increase of just 0.7% in the fourth quarter, the product in part of the government shutdown. Economists had expected that the drain on growth in Q4 would translate to a boost in Q1, but the effects of that appear to be modest.

Still, if global leaders can find an end to the war soon, the economy again is expected to skirt the gloomiest predictions. Stimulus from the One Big Beautiful Bill in 2025 is projected to goose growth, with lower regulations and a boost in tax returns that could help consumers cope with elevated prices. A sustained rise in production also is a factor in the economy’s favor.

“There is support underneath,” said North, the Allianz economist. “That makes me real hesitant to use the ‘R’ word. But certainly, I think we’re seeing a slowdown this year.”

Private sector output in the euro zone sank to a 10-month low in March, amid mounting evidence of the impact the Iran conflict is having on the global economy.

The closely-watched S&P Global flash purchasing managers’ index (PMI) for the euro zone fell to 50.5 in March, marking a steep decline from the 51.9 reported in February.

Economists polled by Reuters had expected a shallower dip to 51.0. The 50.0 threshold separates expansion from contraction territory.

The reading prompted fresh warnings that the region is facing the specter of looming stagflation — a toxic combination of high inflation and unemployment, and stalling growth.

“The flash Eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth,” Chris Williamson, chief business economist at S&P Global Market Intelligence, commented Tuesday.

“Firms’ costs are rising at the fastest rate for over three years amid the surge in energy prices and choking of supply chains resulting from the war. Supplier delays have jumped to their highest since mid-2022, largely linked to shipping issues.”

Euro zone companies surveyed by S&P Global scaled back hiring marginally during March, as bosses lowered output expectations for the year when compared with February forecasts, according to S&P Global economists.

“Stagflation” is often seen as a “worse case scenario” for economies and poses a dilemma for central banks because the tools they’d usually use to combat high inflation — higher interest rates — can stifle growth and employment, while lowering rates can boost growth but increase demand and inflation.

The euro zone is not alone in seeing private sector activity slow due to the Iran war, with PMI data from India earlier on Tuesday also showing output growth slowed to its lowest level since October 2022.

In revised forecasts released last week, the European Central Bank now expects economic growth of 0.9% in 2026, and headline inflation to average 2.6% this year.

That outlook could be optimistic, however, with S&P Global’s Williamson noting that the PMI survey’s price gauge was indicative of inflation accelerating close to 3%, “with cost pressure likely to add still further to selling price inflation in the coming months.”

“The outlook depends on the duration of the war and any potential lasting impact on energy and supply chains, but the flash PMI data underscore how the European Central Bank is no longer in a ‘good place’ with respect to growth and inflation,” Williamson said.

The March PMIs show the conflict in Iran is already having a significant impact on the euro area economy, J.P. Morgan’s Raphael Brun-Aguerre noted Tuesday.

“Overall, the survey points to a large near-term inflation impact from higher energy that could feed into core prices … The energy price shock could hit business profitability and has already damaged demand conditions and output more broadly in the region. Business sentiment is being hit significantly. European Commission data [out Monday] already showed a large hit to consumer confidence in March,” he noted in emailed analysis.

Early Tuesday, European Commission President Ursula von der Leyen said it was time for negotiations with Iran, given the “critical” nature of the global energy crisis.

“The situation is critical for the energy supply allies worldwide. We all feel the knock-on effects on gas and oil prices, our businesses and our societies, but it is of utmost importance that we come to a solution that is negotiated, and this puts an end to the hostilities that we see in the Middle East.”

Chicago Federal Reserve President Austan Goolsbee said Monday that he’s more worried about inflation now than he is unemployment, even with apparent progress made on the war with Iran.

In a CNBC interview, the central banker said policymaking is difficult in the current environment. He spoke shortly after President Donald Trump announced that progress had been made in negotiations with Iran and that further attacks on energy infrastructure would be halted for five days as talks continue.

“The most important thing is to figure out the through line of what is happening,” Goolsbee said in a “Squawk Box” interview. “What makes this a fraught but intense moment is nobody can tell us what is going to happen on the ground in the conflict in the Middle East, and how long that lasts.”

Goolsbee had dissented on a rate cut in December and said he agreed with the majority to hold short-term rates steady at the January and March meetings of the Federal Open Market Committee. He is not an FOMC voter this year but will vote again next year.

Following Monday’s war news, traders, in volatile market action, upped bets of a rate hike by the end of the year but still expect a cut in 2027. Stocks spiked higher and oil prices plunged.

FOMC officials last week indicated a majority still expect a cut this year and another the next. However, Goolsbee said that his inclination will depend on the progress of inflation, and he cautioned against “a repeat of the team-transitory mistake” where the Fed underestimated the severity of inflation in 2021.

“I remain fairly optimistic that by the end of ’26 rates could go down, but I wanted to see proof that we’re back on an inflation headed to 2%. This [war] definitely throws a wrench into the plans. We do need to see progress,” he said.

President Donald Trump said in a Truth Social post Monday that, following talks with Iranian authorities, he ordered the U.S. military to postpone strikes on Iran’s power plants and energy infrastructure for five days.

He told CNBC’s Joe Kernen in a phone call shortly after the post that “we are very intent on making a deal with Iran.”

However, Iranian state media, citing an unnamed “senior security official” in a post on Telegram disputed Trump’s description of conversations, saying direct or indirect talks have not taken place between Washington and Tehran.

“There is been no negotiation and there is no negotiation, and with this kind of psychological warfare, neither the Strait of Hormuz will return to its pre-war conditions nor will there be peace in the energy markets,” state media reported the official as saying.

Trump countered later Monday morning that the U.S. and Iran “have had very, very strong talks” yielding “major points of agreement,” including that Tehran will “never have a nuclear weapon.”

Trump, speaking to reporters in Palm Beach, Florida, said his son-in-law Jared Kushner and U.S. special envoy Steve Witkoff participated in those talks Sunday evening with “a top person” in Iran.

“They want, very much to make a deal. We’d like to make a deal too,” he said. “We’re going to get together today by, probably, phone, because it’s … very hard for them to get out, I guess. But we’ll, at some point, very, very soon, meet.”

Trump said that if the five-day halt in strikes goes well, the parties could end up “settling this.”

“Otherwise, we’ll just keep bombing our little hearts out,” he said.

The president also said that he believes Israel will be “very happy” with the progress made with Iran so far.

He added that the Strait of Hormuz “will be opened very soon, if this works.”

Asked who would control the strait, Trump said it might be “jointly controlled” by himself and “whoever the ayatollah is,” suggesting that such a move would come as part of a “very serious form of regime change.”

In his Truth Social post earlier Monday, Trump said that the U.S. and Iran had “VERY GOOD AND PRODUCTIVE CONVERSATIONS REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.”

The U.S. president said these talks would continue through the week. It was not immediately clear who participated in the talks or when and where they were held.

U.S. stock futures rallied, the dollar fell against other major currencies, and oil prices tumbled on the news.

Speaking with Kernen, Trump said discussions with Iranian authorities had been very intense and that he remains hopeful something very substantive can be achieved.

The U.S. president also insisted on the same call that what is unfolding in Iran can be described as regime change, Kernen reported.

The White House did not immediately respond to CNBC’s request for additional information about the purported talks, and did not immediately respond to Iran’s claim that no such negotiations are underway.

The U.S. president on Saturday issued a 48-hour ultimatum to Tehran to reopen the Strait of Hormuz or face strikes on Iran’s power plants.

The narrow waterway is a key maritime corridor that connects the Persian Gulf and the Gulf of Oman. Roughly 20% of global oil and gas typically passes through it.

The deadline had been due to expire on Monday evening in Washington.

Iranian Parliament spokesperson Mohammad Baqer Qalibaf had said critical infrastructure and energy facilities in the Persian Gulf region could be “irreversibly destroyed” should Iranian power plants be attacked.

Shipping traffic through the Strait of Hormuz has virtually ground to a halt since the U.S. and Israel launched airstrikes on Iran on Feb. 28. Iran has retaliated by targeting ships trying to pass through the strait, with several incidents reported in recent weeks.

The Iran war has stoked global inflation fears and created what the International Energy Agency calls the largest supply disruption in the history of the oil market.

— CNBC’s Anniek Bao contributed to this report.