Global supply chain strain has surged to its highest level since the pandemic-era disruption of late 2022, as the war in the Middle East drives renewed fears of shortages, higher transport costs and further price rises. This is demonstrated in the latest GEP Global Supply Chain Volatility Index, which jumped to 1.64 in April from 0.57 in March, its highest reading since October 2022. The index, produced by S&P Global and GEP, is based on PMI survey data from around 27,000 companies in more than 40 countries. A reading above zero signals that supply chain capacity is being stretched, with higher readings indicating greater pressure.

April’s move marks a sharp change in tone for companies managing production inputs. Global purchasing of raw materials, commodities and intermediate goods rose at its strongest pace in more than four years. Crucially, the increase reflected front-loaded buying ahead of expected inflation and supply disruption, rather than a straightforward improvement in manufacturing conditions.

That distinction matters for finance and treasury teams. When companies buy ahead to protect against shortages, cash is pulled into inventory earlier than planned. That can raise working capital needs, distort demand signals, increase storage and financing costs, and make cash-flow forecasting harder. If the stockpiling is defensive rather than growth-led, the balance-sheet impact can arrive before the revenue benefit.

The most visible warning sign is the renewed build-up of safety stocks. Global manufacturers increased inventory buffers at the fastest rate in three years, with reports of safety stockpiling at their most widespread since January 2023. GEP said firms were seeking to secure goods and raw materials before further price increases and supply disruption.

Material shortages also worsened. The index’s items-in-short-supply indicator rose again in April to its highest level in nearly three and a half years, putting shortages of critical materials and inputs at their most acute since late 2022, towards the end of the post-pandemic supply squeeze.

Transport costs add a further pressure point. GEP’s global transportation costs tracker climbed to a record high in April, with data first collected in 2005. The rise reflected higher fuel prices, maritime disruption and increasing shipping and freight rates linked to the Middle East war.

Labour shortages remained more contained, although they were marginally above the long-run global average. Europe saw the greatest reports of manufacturing backlogs caused by staff shortages, adding another layer of friction in a region already facing aggressive inventory building.

Asia feels the sharpest shock

The regional picture shows how unevenly the disruption is being felt. Asia recorded the sharpest deterioration in supply chain conditions, with its index surging to 3.79 in April from 1.16 in March, the highest level in more than four years. GEP said transportation costs were a key factor, with the region more reliant on Middle East oil than other parts of the world.

That exposure helps explain why the current shock looks different across regions. Higher fuel and shipping costs are global, but the severity depends on energy dependence, supply-chain geography and the ability of firms to switch suppliers or routes quickly.

North America’s index rose to 1.52 from 0.42, a 44-month high. Manufacturers in the US and Canada bought more materials to build inventories, leading to what GEP described as a sharp squeeze on supply chain capacity across the continent.

Europe’s index climbed to 1.64 from 0.64, a three-and-a-half-year high. European manufacturers stockpiled more aggressively than any other region, suggesting particular concern over supply availability and costs. The UK index rose to 0.96 from 0.16, its highest reading since December 2022.

For companies selling into or sourcing from these markets, the implication is a more complicated operating environment than headline demand alone would suggest. A rise in purchasing activity can look positive at first glance, but when it is driven by safety stockpiling, it may signal rising risk rather than stronger underlying demand. That creates a familiar challenge for treasury and procurement functions. Finance teams need to distinguish between genuine demand-led inventory build and protective buying caused by fears of disruption. The first can support growth assumptions; the second can increase cash conversion pressure and raise the risk of overstocking if demand later weakens.

Inflation risk moves through the supply chain

The GEP data also gives more evidence that the Middle East conflict is feeding into corporate cost structures through several channels at once. Oil volatility affects direct fuel costs, maritime disruption affects freight rates, and shortages of inputs can increase spot prices and weaken supplier leverage.

Those pressures are likely to land differently across sectors. Manufacturers with energy-intensive inputs, long international supply chains or limited supplier diversity will face greater exposure. Companies operating with lean inventory models may also need to reconsider whether lower carrying costs still compensate for higher disruption risk.

Corporate finance teams are likely to see the effects in three main areas. First, working capital could become more volatile as inventory levels rise and procurement teams buy earlier than normal. Second, margins may come under pressure if higher input and transport costs cannot be passed through quickly. Third, liquidity planning may need to allow for longer lead times, more expensive logistics and greater use of contingency stock.

The data also points to a potential problem for inflation forecasting. Safety stockpiling can reinforce price pressure by pushing more demand into already constrained supply chains. That may make it harder for companies to judge whether recent cost increases are temporary or likely to become embedded in supplier pricing.

This is where the supply chain data connects with wider financial markets. The latest S&P Global Investment Manager Index shows that investors are also adjusting to a conflict-driven environment, although risk appetite has started to recover. Its Risk Appetite Index rose for a second consecutive month in May, from +7% in April to +17%. That is well above the March low of -16%, which followed the outbreak of war in the Middle East, but still far below the buoyant +41% reading seen in January.

The survey covers nearly 300 institutional investors managing more than US$3.5 trillion. Its message is not full confidence, but a cautious return of risk appetite as fund managers reassess earnings, sector winners and the US outlook.

Sector preferences show how investors are reading the same disruption. Technology moved to the top of investor rankings for the first time since last November, with the strongest positive sentiment in one and a half years. Industrials and basic materials also remained favoured, often linked to the possibility that supply tightness and higher prices support profits in parts of the market.

Energy remained in positive favour, but sentiment cooled to its lowest since January as profit expectations moderated amid signs that the US was resisting further escalation of the conflict. At the other end of the market, inflation and interest rate-sensitive sectors remained under pressure. Real estate was the most out of favour, followed by consumer discretionary, while consumer staples also recorded marginally negative sentiment. In all three cases, negative sentiment eased compared with April.

The investment survey also highlights the contradiction facing companies and markets. Equity fundamentals are viewed as their strongest since December 2021, while upward revisions to earnings expectations reached the highest level since the survey began in 2021. The US macro environment also returned as a positive driver for equities for the first time since the war began.

However, the wider global macro environment remains a heavy drag on US equities, although less than valuations and political risk. The political environment was the largest drag on the market for a fourth consecutive month. Government fiscal policy turned negative for equities for the first time since last November, while central bank policy remained a drag for a second month, contrasting with positive sentiment during the previous nine months. That shift reflects more hawkish views on Federal Reserve policy as war-related inflation concerns persist.

Inventory pressure meets margin risk

For corporate finance teams, the telling point is that markets are not treating the Middle East shock as a simple risk-off event. Investors are differentiating between sectors that may benefit from supply tightness, sectors that are exposed to inflation and rates, and companies whose earnings can withstand higher input costs. That selectivity mirrors the operational reality in supply chains: disruption can create pricing power for some firms while straining cash and margins for others.

The combined picture is one of resilience under strain. Manufacturers are still buying, investors are tentatively returning to risk, and some sectors may benefit from tighter supply. But the foundations are less comfortable. Purchasing activity is being pulled forward by fear of shortages, transportation costs are at record highs, and shortages are spreading across every major region.

Highlighting how the shock has broadened is the most valuable signal from the GEP index. Pressure that started in the shipping lanes and fuel prices is now showing up in inventory decisions, supplier capacity, purchasing behaviour and material availability. That makes it a finance issue as well as an operational one.

“Even if tensions in the Middle East ease quickly, global supply chains are unlikely to normalise for another six to 12 months,” said John Piatek, vice-president, consulting at GEP. “What stands out in April’s data is how broadly the disruption is spreading. Shortages worsened across every major region, signalling this is no longer an isolated transport shock. Companies worldwide are now scrambling to secure supply and protect themselves against further inflation and disruption.”