No safe distance: which of your clients are in the blast radius?

Most accounting practices treat geopolitical risk as background noise that applies equally to everyone. That is the wrong framework. The economic weather system I described in Part One is moving across the country – but it is not raining evenly.

First order and second order: the distinction that changes everything 

Before walking through the industries, I want to draw a distinction that most SME owners miss – and that most of their advisers do not yet help them see.

A first-order impact is direct and traceable: fuel bills rise because oil prices spike, freight invoices climb because Red Sea rerouting adds cost to every container from Europe or South Asia, and imported components cost more because the AUD depreciated. These show up in the P&L within months and clients can usually identify them when prompted.

A second-order impact is indirect and delayed. 

Customers spend less because their own costs have risen. A bank tightens credit assessment because it is managing portfolio risk across its book. A competitor who imported ahead of the disruption undercuts you for six months while you absorb higher input costs. These impacts are often more damaging, but clients never attribute them to geopolitical causes. They call it "the market slowing down." 

The RBA's February 2026 liaison data is instructive here: retailers reported consumers had become increasingly "mission shopping," with inconsistent demand outside promotional periods. That is a second-order consequence of sustained cost-of-living pressure tracing partly back to freight and energy pass-through that began in 2024. The homewares retailer does not see the Red Sea in their sales data. But it is there.

The industry risk map: Where the pressure is already landing

Here is how I am currently categorising client exposure across the industries that Australian accounting practices most commonly serve. This is a practitioner's map, not an economist's model. Its purpose is to help you prioritise which client conversations need to happen first.

Construction and infrastructure: high exposure

Construction is carrying more risk than most accounting practitioners currently appreciate. Steel, aluminium, engineered timber, and manufactured fittings are import-heavy. Container rates reached nearly four times their 2019 average at peak disruption in 2024, and the lag from locked-in supplier contracts means more of that cost is still working through the system. Energy costs compound the picture: construction is intensive across machinery, transport, and site operations, and the RBA noted in February 2026 that oil prices moved higher on Iranian tensions. 

The second-order risk is equally significant – the February 2026 RBA Statement confirmed residential builders are already operating under tightening capacity pressures and rising trade labour costs. Add materials cost pressure from a further escalation, and the going concern question for some smaller construction firms becomes real. This is an audit issue, not just a cash flow one.

Hospitality and tourism: high exposure

The hospitality sector carries a double exposure. The direct side is fuel: delivery costs, refrigeration, vehicle fleets, and commercial kitchen energy costs – all sensitive to oil price movements. 

The indirect side is consumer sentiment. The RBA's liaison data from early 2026 noted consumers had become "value conscious" and were "mission shopping," with inconsistent demand outside promotional periods. 

A Middle East escalation pushing petrol above two fifty per litre is not a geopolitical event to a restaurant owner; it is a revenue forecast problem. Tourism faces a further structural exposure: Australia receives meaningful visitor numbers from Gulf state nationals and the Middle Eastern diaspora. Sustained escalation reduces the inbound pipeline and affects destinations like Sydney, Melbourne, and the Gold Coast directly.

Agriculture and food production: high exposure

Fertiliser pricing is the underappreciated exposure in Australian agriculture. The Middle East and surrounding regions are significant sources of potassium and phosphate, and supply disruptions in those markets flow directly into fertiliser input costs for Australian farmers – a cost that sits upstream of most farm operators' visible budget line items. Fuel is the second major channel: tractors, harvesters, irrigation pumps, and produce refrigeration make agriculture one of the most fuel-intensive sectors in the domestic economy. 

The second-order risk runs export-side. Australian agricultural exporters can benefit from higher global price environments that typically accompany energy disruptions – but the timing is asymmetric. Input cost increases arrive immediately; export price improvements take quarters to materialise, and smaller producers often cannot renegotiate contracts quickly enough to capture the upside before the cost damage is done.

Retail: Moderate to high exposure

The RBA's research on shipping costs is particularly instructive for retailers. Consumer durables – electronics, appliances, furniture, tools – showed the strongest freight cost pass-through, with the RBA estimating inflation in that category rises around 0.8 percentage points two years after a significant shipping cost shock. Tradable groceries show a similar but slightly more muted response, around 0.5 percentage points after eighteen months. For a retailer whose product range is heavily imported – and most non-food retailers source from Asian or European manufacturers – this is not a theoretical number. It is a margin squeeze arriving in two tranches: first through higher input costs, then through customer resistance to price increases in an environment where households are already stretched.

Transport and logistics: direct exposure

This sector is perhaps the most directly exposed of any in the domestic economy. Fuel is typically the largest operating cost for transport businesses and largely unhedgeable for smaller operators. A sustained oil price rise translates within weeks to higher operating costs per kilometre. 

The secondary exposure is contractual: many operators work under agreements with fuel surcharge clauses, but those clauses were negotiated in a lower-price environment. If oil prices move materially above the trigger levels, the operator absorbs a cost their customers did not budget for – and renegotiation rarely happens until a contract renewal forces the conversation.

Professional services: indirect but real

Professional services firms – including accounting practices themselves – carry the lowest direct exposure. They do not import physical goods, their supply chains are short, and energy costs are a modest share of overhead.

Their exposure is indirect but consequential. When clients are under financial stress, professional services firms face delayed payments, reduced scope of work, and a shift in the nature of client conversations from growth-oriented to survival-oriented. The firms that are best positioned to navigate this environment are those that can transition from compliance service provider to strategic adviser. That transition is what Part Three of this series addresses.

2 clients. Different risks. 1 accountant who needs to know the difference.

Client A is a family-owned electrical wholesale business in Western Australia supplying residential and commercial construction. Around sixty per cent of their product range is sourced from European and South-East Asian manufacturers. Their freight costs doubled through 2024 and have remained elevated. Gross margin has compressed by four percentage points over eighteen months. The owner has not connected this to Red Sea rerouting – they believe it is a supplier-side pricing decision. Their accountant has not raised the structural cause. 

The immediate actions: stress-test current freight contract terms, model a twenty per cent further rate increase, and initiate a supplier conversation armed with evidence rather than assumptions.

Client B is a medium-sized catering and events business in Victoria with revenue concentrated in corporate bookings. Fuel and energy costs have risen steadily. More significantly, their forward booking pipeline has softened in Q1 2026 – not dramatically, but noticeably. The owner attributes it to "post-holiday slowdown." Their accountant has not asked what proportion of corporate clients are in high-exposure industries. 

If Client B's top ten clients are concentrated in transport, construction, or retail, those clients' own cost pressures will reduce discretionary event spend in the quarters ahead. The second-order risk is real and traceable – but only if someone asks the right questions first.

The 5-factor client exposure scan

I use this framework at the start of any client conversation where I suspect Middle East exposure is present but unquantified. It is designed to run in fifteen minutes and produce a clear prioritisation of where the risk is concentrated.

Factor 1: Fuel and energy intensity: 

What percentage of the client's total operating costs are fuel or energy-related, directly or indirectly? 

This includes vehicle fleets, heating and cooling, production machinery, and refrigeration. Any client above fifteen per cent of operating costs in this category is in the high-exposure tier. The number they have today is not the number they should be budgeting for.

Factor 2: Import dependency and supply chain depth: 

Does the client import directly, or do they source from domestic suppliers who import? 

Map this two levels deep. Ask the client to name their five largest suppliers and identify whether those suppliers source internationally. The Red Sea exposure is often invisible at the immediate supply level but visible one step back. This question surfaces it.

Factor 3: Pricing power and contract structure: 

Can the client pass input cost increases to their customers, and how quickly? 

A business with long-term fixed-price contracts and price-sensitive customers has near-zero short-term pricing power. A business with short-contract or transactional customer relationships can reprice quickly. This factor determines whether the exposure is a margin problem or a cash flow problem. The distinction matters for the response.

Factor 4: Customer concentration in exposed sectors: 

Even if the client's own direct exposure is low, what sector are their customers in?

A marketing agency serving construction firms, a cleaning company servicing hospitality businesses, a software provider to transport companies – each of these carries second-order geopolitical risk through their customer base. Ask the client what percentage of revenue comes from the three highest-exposure sectors identified in this article. If it exceeds forty per cent, the conversation needs to go further.

Factor 5: Cash flow buffer and debt serviceability: 

How much runway does the client have if margins compress by five to eight percentage points for two or three consecutive quarters? 

The RBA's February 2026 Statement noted that business debt has grown strongly, returning to pre-pandemic levels as a share of GDP. A client who has used recent credit availability to fund expansion is more vulnerable to a sustained cost shock than their P&L currently suggests. The stress test here is simple: model a fifteen per cent increase in their three most volatile cost lines and ask whether the resulting cash position remains serviceable.

If a client scores high on three or more factors, they need a structured advisory conversation – not in ninety days at their next scheduled meeting, but now. The framework that conversation should follow is the subject of Part Three.

Strategy over shopping lists – and right now, the most important strategy question is not which AI tool to adopt or which market to enter. It is whether the business can absorb the cost pressure that is already in the pipeline.

The risk that hides in plain sight

"My clients are mostly domestic businesses. They don't export or import. The Middle East isn't really relevant to them."

Reality:

This is the most common misreading I encounter – and it is the most dangerous one. Domestic-focused businesses are not shielded from the transmission of geopolitical costs; they are simply one step removed from the point of origin. 

A building contractor who buys materials from an Australian distributor is still exposed to whatever that distributor paid for those materials at the port. A café owner who buys coffee from a local roaster is still exposed to the fuel cost embedded in that roaster's delivery fleet. A professional services firm whose three largest clients are in construction is exposed to whatever stress those clients absorb. The "domestic business" classification describes a firm's customer-facing orientation. It says nothing about where their costs actually originate – and it says nothing about the financial health of the clients who pay their invoices. That is the question to start asking.

Part Three of this series – "The call your clients are about to make" – translates this risk map into a structured advisory conversation and three specific deliverables you can present to at-risk clients within the next thirty days.

Andrew Cooke is the founder of Growth & Profit Solutions AI (GPS-AI), specialising in helping Australian businesses navigate AI transformation and strategic risk.