Factories face weaker demand, higher costs in July as Iran war grinds into fifth month

Five months into the Iran war, the global factory floor is starting to crack. Manufacturing surveys released in early August 2026 show a sector caught in the worst kind of economic pincer: demand is falling while costs are climbing. China’s manufacturing activity contracted in July, dragged down by weaker external demand and ballooning input costs tied directly to the Middle East conflict. Europe isn’t faring much better, with manufacturers across the continent reporting some of their steepest operating cost increases in years. The common thread is energy, and the chokepoint is the Strait of Hormuz. The Hormuz problem Roughly a fifth of the world’s oil passes through the Strait of Hormuz on any given day. The Iran war, which began in early March 2026, has disrupted shipping through that corridor, pushing oil and energy prices higher and creating a cost shock that manufacturers can’t easily absorb. Chemical and steel producers in the UK and EU have responded by slapping surcharges of up to 30% on their products. European manufacturers had already reported their highest input cost increase in four years back in May 2026, and those pressures have only intensified through July. China f...