The war in Iran is disrupting the traditional retail playbook, where low-priced fashion retailers typically thrive during economic downturns. This time, polyester-heavy fast fashion may be among the biggest losers as oil prices surge. With crude up 40% in a month, polyester production costs have jumped over 25%, directly impacting retailers like H&M and Shein.

Supply chain disruptions compound the problem. Freight rates between Shanghai and Rotterdam have risen 20% since the conflict began, while air freight prices between Southeast Asia and Europe are up 25%. H&M's recent profit boost, helped by 80 basis points from cheaper polyester, could reverse as costs climb. UK retailer Next warns higher oil prices may feed into input costs by the second half of the year.

Exposure to oil varies significantly across the sector. While H&M uses polyester in roughly a quarter of its products, all recycled, Shein's products are more than four-fifths polyester-based. If costs rise, retailers at the cheaper end may struggle to pass price increases to consumers, especially if demand becomes increasingly K-shaped. The war's broader economic impacts could also reduce overall consumer spending, potentially hitting fast fashion harder than expected as shoppers buy fewer items rather than trading down.