After a brief pause, the Iran war seems to be rolling on, and the conflict could deal a significant blow to a global toy industry that’s only just started to recover after a few bumpy years—and the longer it goes on, the worse the consequences could be.

One of the biggest impacts for toy companies is the rising cost of oil. Oil is used to produce plastic resin, which is used in many toys. It’s especially important for products like outdoor toys that use it heavily, notes Andrew Wagar, a spokesperson for the Canadian Toy Association. Rising fuel costs are also driving freight and cargo prices up—and plane tickets for business trips and meetings have gotten more expensive, too.

Before the war, about 20 million barrels of oil passed per day through the Strait of Hormuz, a sea passage that’s central to the Middle East conflict. About 25% of the world’s seaborne oil trade typically passes through the strait, according to the International Energy Agency. As it was attacked, Iran had blocked almost all traffic through the strait for weeks, and now that the country is looking to reopen the waterway, the US has blockaded it.

This has been pushing oil costs up, and that increase could lead to a repeat of the inflation the toy industry saw during the pandemic, when higher prices translated to either increased retail prices—hurting consumers’ wallets—or lower margins for toy companies, said Steve Reece, a former Hasbro brand marketer who’s a toy industry consultant through Kids Brand Insight. Reece referred Kidscreen to a LinkedIn post he wrote, where he breaks down some of the war’s consequences; he warns that prices could increase beyond oil as the cost of transporting goods rises, that companies will need longer lead times, and that the supply chain could be disrupted in Q3/Q4 2026 if the war continues.

Some of Reece’s recommendations for toy companies include locking down contracts for lower resin pricing, re-forecasting freight costs for the year and reviewing the safety stock levels (a buffer amount of stock usually saved up for cases of excess demand) for key SKUs. He also advises adjusting timing for Christmas commitments, and says companies should diversify ports of exit or move manufacturing closer to home, if possible. Plus, finance teams should check whether their current cashflow could handle a 10% to 15% increase in costs.

On a supply chain level, many of today’s current challenges are reminiscent of the disruptions the industry had to weather back in 2021 and 2022, after the pandemic and Russia’s invasion of Ukraine, the Canadian bank RBC notes—though this conflict hasn’t yet reached the same level of economic impacts that one had, according to the bank’s macroeconomic report. “Overall, we see little evidence of a return to the broad-based supply chain disruption that drove global inflation in 2021–2022,” the report said.

While findings like that might be reassuring, toy companies in particular are preparing for potential consequences. Wagar spoke to three Canadian toycos for their insights on how the war is actually affecting them. All of the businesses requested anonymity to talk freely. So far, these companies haven’t felt direct impacts from the conflict, but are preparing for potential downstream effects, and they’re uncertain what the timing and extent of those effects could be, Wagar says.

And just because the industry hasn’t been hit too hard yet, that doesn’t mean the picture won’t change. “The longer the conflict continues, the greater the likelihood of broader impacts across both the Canadian and global toy industries,” says Wagar.

At this stage, retailers aren’t yet weighing in with feedback or guidance to toy companies. And even if prolonged conflict drives up the cost of materials, components and shipping, most toy companies have contracts in place to mitigate short- to medium-term volatilities like price spikes. But one cost of the conflict would be unavoidable: if consumer spending starts to slow.

“The greater concern for the Canadian toy industry is the potential impact on consumer confidence,” says Wagar. “While the toy sector continues to show growth according to Circana, sustained inflation driven by higher fuel costs could reduce discretionary spending in Canada and globally.”

Image courtesy of william07 via Unsplash.