In a reflection of the growing uncertainty in global trade as the conflict in the Middle East enters its third week following the US and Israel’s attack on Iran, more corporates are insisting on letters of credit (LC)-backed trade deals. These bank guarantees act as a safety mechanism in today’s volatile and unknown trading environment, and companies are leaning into the facility to ensure their cash conversion cycle is protected, Tibor Bartels, Managing Director, Head of Transaction Services Americas at ING, tells Treasury Today.
In recent years, open invoicing shaped around bespoke payment schemes between buyers and sellers has increasingly characterised long-term trading relationships between investment grade corporations and their suppliers in a reflection of mutual trust and confidence, Bartels continues. Now treasury teams are switching back to old fashioned LC-backed trade deals again.
“We are seeing more demand for security and corporates are asking for LC-backed business so if something happens, they can guarantee the flow of trade,” he says. He adds the conflict is also causing the bank’s clients to actively tap other supply chain finance and receivable finance strategies both to access cheaper liquidity and help finance their suppliers to ensure buyers are guaranteed delivery of the goods they need for their business.
He notices treasury teams are building liquidity and commodity buffers, higher inventories and gathering scattered liquidity too. Different FX strategies like leaning into notional cash pools rather than active spot management are also on the rise as corporates position for a stronger dollar – and unwinding of euro strength as Europe braces for the negative impact of the conflict. “The real question is if the crisis turns into a two-three-month story. Then it will be much more difficult for the global economy,” he says.
Stagflation raises its head
A stronger dollar is just one of the changes in the macro-outlook which the conflict is forcing treasury teams to reconsider, adds James Knightley, Chief International Economist at ING. At the beginning of the year, companies expected the Fed to cut rates and forecast that inflation would head towards 2% in an environment that pointed to healthy corporate profits.
But in a signpost of inflation ahead, Knightley points to data that shows US companies have started to import more after a post tariff announcement lull in mid-2025. “There is a big import bill coming through, this coupled with tariffs and the energy price story, may mean that corporate America will have to pass on costs to customers.” Corporate America is paying an estimated US$25bn extra a month in tax off the back of tariffs. This, now coupled with higher transport and insurance costs to guarantee shipments, suggests inflation will start to rise again. “All these factors will push the cost of business up, so from a macro perspective, we remain nervous about what’s going on.”
Knightley also warns that US consumers are more stressed than they appear. The jobs market is flatlining; wage growth is slow, and he is concerned households have exhausted their savings. “Household balance sheets are less robust than they were in 2022,” he says. “This time, consumer fundamentals are less rosy and there is a sense that higher costs are going to be demand destructive. We could be entering a period of stagflation where we get inflation from the energy shock, but no uptick in economic activity and a weaker growth backdrop.”
Knightley highlights risk in particular sectors like fertilizers and semiconductors.
In a recent paper, the World Economic Forum noted that prices for urea, the most popular synthetic nitrogen fertilizer, have increased by around 30% over the past month. Elsewhere, around 90% of Taiwan’s energy needs are supplied by natural gas imports from the Gulf, of which an estimated 10% goes to the semiconductor manufacturing industry and companies like Taiwan Semiconductor Manufacturing Company (TSMC). A sudden spike in energy costs or shortage of supply, puts the sector in jeopardy, he said.
Knightley also reflects that as US corporate costs build, companies won’t hire people and will have a more cautious approach to capex, cutting back on investment.
Positively, he flags that Europe’s energy position is better now than it was in 2022 when the continent stopped taking Russian gas following Russia’s invasion of Ukraine. Back then, French nuclear power was offline, and today Europe gets more of its energy from renewables. Europe also has a much more joined up energy system today. “In 2022, European countries were competing with each other. Now, there is a coordinated approach to gas buying through Aggregate EU so Europe is in a better position, but the risk is that Asia is more stressed on the energy front,” he concludes.
