Economic shocks caused by the Middle East war have implications for financial risk exposure, law firm Kennedys has warned.

“This is not a direct war risk in the traditional sense,” partner Nicole Wearne said. “It is something more insidious, a fuel-driven economic shock that is rapidly cascading into balance sheets, boardrooms and ultimately insurance claims.”

Many businesses have already felt the impact of rising oil prices.

“Diesel costs increase, freight becomes unpredictable, margins compress, and for many businesses already operating on thin buffers, the consequences are not incremental, they are existential,” Ms Wearne said.

“What is less well understood is how quickly this macroeconomic shock translates into financial lines insurance risk.”

Directors and officers insurance will be the first to feel the pressure.

Ms Wearne said: “Earnings volatility driven by fuel and input cost inflation is already putting pressure on listed companies to revise guidance. Where disclosures lag reality or where risk management appears inadequate in hindsight, litigation tends to follow. Australia already has one of the most active securities class action environments outside the United States.”

Professional indemnity insurance is another financial line that could come under strain.

“Advisers, consultants and project managers are being asked to make forecasts in an environment where key variables including fuel costs, inflation and interest rates are shifting rapidly.

“When projects run over budget or strategies fail to deliver, the question of whether advice was reasonable at the time becomes fertile ground for claims. The fuel shock is here. The financial lines consequences are following close behind. The question now is whether insurers and businesses respond with foresight or simply wait for the claims to arrive.”

Kennedys says the construction and infrastructure sectors are entering a period of “sustained cost pressure” and delivery risk as fuel markets respond to the war.

“The broader shift is clear. Fuel price volatility is no longer a short-term disruption but an embedded feature of the construction and infrastructure landscape.”