British businesses are heading into the current energy crisis in considerably worse financial shape than they were when Russia invaded Ukraine in 2022 — and analysts warn the fallout could be sharper and arrive faster this time around.
New figures from the Weil European Distress Index paint a stark picture. The index, compiled by law firm Weil, Gotshal & Manges, monitors the financial health of more than 3,750 listed companies across Europe using measures including cashflow pressure, debt load, and return on investment. Before the latest Iran-driven energy shock, the index was already sitting at a reading of 2.5 — firmly in distress territory — compared with -7 in February 2022, just ahead of the Ukraine invasion. That marks a significant deterioration in corporate resilience over the intervening years.
The immediate trigger is the disruption to oil and gas flows through the Strait of Hormuz, a chokepoint handling roughly a fifth of the world’s energy exports. Escalating tensions have also raised fears about the Red Sea becoming further destabilised. Brent crude has climbed from around $60 a barrel at the start of the year to close to $115, a surge that is feeding through into higher costs across manufacturing, logistics, and food production.
Andrew Wilkinson, a restructuring partner at Weil, highlighted the pace of change as a key risk. “If energy prices remain elevated and confidence continues to weaken, we could see stress build more quickly than in previous cycles,” he said.
The UK Is Especially Exposed
Among major European economies, the UK stands out as particularly vulnerable. The index ranks Britain as one of the most distressed markets on the continent and identifies it as the most exposed to rising borrowing costs. The resurgence in inflation — driven primarily by energy prices — is expected to limit the Bank of England’s ability to cut rates, with markets increasingly pricing in the possibility of further tightening.
The broader economic backdrop adds to the concern. Official data from the Office for National Statistics showed UK growth stalled in January, even before the latest energy shock hit. Unemployment has climbed to 5.2%, its highest since early 2021, weighing on consumer spending at the worst possible time. The OECD has already warned that the UK is on track to suffer the largest growth hit of any G20 economy as a result of the conflict.
Less Room to Absorb the Shock
What makes this crisis especially precarious is that companies have fewer tools available than in 2022. Back then, many businesses entered the Ukraine-driven energy shock with healthy balance sheets and access to cheap financing. That is no longer the case. Years of economic disruption, higher rates, and tighter credit conditions have left firms with thinner buffers — particularly those with heavy energy exposure or significant debt. The risk of insolvencies and restructuring activity accelerating is real if conditions don’t ease.
Rising energy costs will also squeeze household incomes, reducing consumer demand and adding another layer of pressure on an already strained corporate sector. With the Middle East conflict showing no clear path to resolution, businesses face a prolonged period of uncertainty in which the margin for error is significantly reduced.