Middle East War Drives Up Apparel Costs by Up to 20%, Threatening Retailer Margins

Quick Facts

Ship transits through the Strait of Hormuz collapsed 97% after U.S. and Israeli airstrikes on Iran began Feb. 28, 2026, triggering the worst apparel supply chain shock since COVID-19.
Polyester feedstock costs rose nearly 30% for Indian yarn producers, while freight rates from Bangladesh to Europe and the U.S. jumped 40%, adding $1,200 to $1,500 per container.
McKinsey estimates basic apparel price increases could reach 10% to 20%, though the full impact may take up to a year to materialize.

The war in the Middle East is hitting clothing costs hard and fast. The near-total closure of the Strait of Hormuz since late February 2026 has produced the most severe supply chain shock for the global textile and apparel industry since the pandemic, with raw material prices, freight rates, and factory costs all climbing at once.

U.S. and Israeli airstrikes against Iran began Feb. 28, 2026. Within days, all four major container lines suspended operations through the Hormuz. Crude oil prices surged 26% as of March 12. Bunker fuel costs doubled.

The disruption hit polyester producers first. Polyester is derived from fossil fuels, and Middle East supply of key feedstocks dried up quickly. Filatex, one of India’s biggest polyester yarn producers, is paying nearly 30% more for purified terephthalic acid and monoethylene glycol as Chinese suppliers raise prices to fill the gap. Data from Wood Mackenzie shows polyester staple fibre prices in India jumped from 100 rupees per kilogram at the end of February to 126.5 rupees a month later.

Cotton is under pressure too. Prices surged to a two-year high as buyers sought alternatives and supplies tightened amid fertilizer shortages and El Nino concerns. Julian Hügl, a partner at McKinsey and Co., said the simultaneous pressure on both fibers removes the usual escape valve. “What’s unusual in the current environment is that both major fibers are facing cost pressure at the same time,” he said. “That removes the usual ability for brands to substitute between fibers.”

Freight costs compound the problem. Rates from Chittagong to Europe and the U.S. have increased 40%, with per-container costs rising $1,200 to $1,500. Shipping lines are diverting cargo around the Cape of Good Hope, adding more than a week to transit times and disrupting production schedules. The disruption threatens to push global textile production costs up by 10% to 15%, with polyester value chains absorbing the steepest hit.

Thread producer Coats Bangladesh announced a 15.5% price increase effective April 15, 2026, citing rapid escalation in oil-derived feedstock costs and higher transportation expenses. German fabric maker Kettelhack has seen costs rise 5% to 8%.

Factory-level disruptions are severe in Bangladesh. Anwar-Ul Alam Chowdhury, president of the Bangladesh Chamber of Industries, said factory output has dropped 30% to 40% and business costs have risen 35% to 40% since the U.S. and Israel launched strikes on Iran. Shovon Islam, managing director of Sparrow Group, which supplies Inditex, M&S, Next, and Primark, said apparel consignments are stuck at Dhaka airport after Dubai airport operations were suspended. “We’re trying to figure out alternative routes, but none of them are simple or cost-effective,” Islam said.

Plummy Fashions, which supplies Zara and Pull&Bear, saw polyester yarn prices jump by as much as a quarter within weeks. Managing director Fazlul Hoque said one buyer put polyester orders on hold hoping prices would fall.

Bruna Angel, principal analyst for fibers at Wood Mackenzie, warned the situation is approaching a breaking point. “If this goes on for one more month, forget it — we will have lower clothing production and what we call demand destruction, because retailers will have to raise their prices and consumers will cut their purchases,” she said.

Major retailers are already absorbing hits. Inditex said Middle East disruptions have pushed up transport and input costs and expect continued pressure on gross margins in the second half of 2026. The company said it has adapted transportation methods and leaned on a multi-country sourcing network to limit exposure.

Jakob Dworsky, co-founder of Swedish brand ASKET, described the past several years as unstable. “If you go all the way back to COVID, it feels like nothing has been really stable,” he said. “We’ve had to adapt.”

McKinsey’s Hügl estimates consumer-facing price increases in basic apparel categories could reach 10% to 20%, though it may take up to a year for the full impact to show up on store shelves. Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association, said buyers are already pulling back. “Buyers are becoming more cautious and carefully calculating risks before placing orders, which could affect order volumes,” he said.