Key Takeaways
- Fundraising is at risk. The conflict’s inflationary pressures may shrink both small donations and philanthropic giving at the same moment many nonprofits are already scrambling to replace lost federal funding.
- Labor costs are rising. A projected spike in inflation could push up the cost of living, forcing nonprofits to compete harder for workers who may increasingly favor higher-paying private and public sector jobs.
- Expenses are climbing across the board. From office supplies to employer insurance plans, the war’s supply chain disruptions are poised to squeeze nonprofit operating budgets in ways that will be difficult to avoid.
The United States and Israel launched military strikes against Iran on February 28, 2026, initiating an armed conflict that has rapidly escalated across the Middle East. Iran has responded with missile and drone strikes against Israel, U.S. military bases, and Gulf states in the region. The conflict has effectively closed the Strait of Hormuz to oil tanker traffic and disrupted global shipping, with wide-ranging economic consequences that are already being felt. Nonprofits that were already dealing with the fallout of the federal freeze on funding are especially vulnerable to these effects and may need to carefully reexamine their organization and funding strategy. Even stable nonprofits unaffected by the freeze may feel some strain as supply chain durability is tested.
While many of the most significant effects may not be felt for months or even years, the transformational impact of a large-scale conflict is difficult to overstate. What’s more, there is the potential for escalation or an expansion of the conflict within the region, both of which could exacerbate the risk of higher inflation, a labor shortage, or a general contraction of the economy. In a globalized system dependent on energy-intensive shipping and logistics, these impacts could be difficult to contain to one region or sector.
Here’s what the war could mean for your organization now and in the future:
Impact on Fundraising
While each nonprofit has a different funding structure, the generalized impact of the war on the cost of living and on price inflation could lead to a drawdown in available funds. Many nonprofits, particularly those dependent on federal and state grants, were already shifting gears towards small donations and benefactors to make up for budget shortfalls. However, if the war leads to a sustained increase in costs, both small and philanthropic donors may be less willing or able to afford donating.
Longer-term issues around particular sectors could crop up as well, especially as any disruption of shipping traffic through the Strait of Hormuz not only threatens energy costs but specific goods like aluminum, helium, or liquid natural gas, which are critical for the semiconductor and data center buildouts driven by the AI industry. The effects may not be immediate, but the potential for knock-on effects is significant for industries which represent a significant portion of global investment. Lengthening the time-to-build for these load-bearing industries could create downward economic pressure, increasing the risk of a correction or recession.
How you can prepare: While it will be difficult to fully insulate yourself from funding shortfalls, having a plan to diversify your fundraising can help ensure that you aren’t totally frozen out. You can encourage donors to commit to small monthly donations instead of single sums, which can help you project your financial situation out further and budget accordingly.
Impact on Hiring Costs
Inflation has dropped significantly from its 9% peak in 2022, but the war is projected to undo some of this, with the OECD projecting inflation to reach 4%. Because of the broad impacts of an energy shock, it will be difficult or impossible for most industries to escape increased costs. Global shipping is already significantly impacted as bunker fuel prices have doubled over the last month, leading to underutilization of the international shipping fleet.
All of these factors could lead to increases in the costs of essential goods including food, energy, and housing. This has the potential to push the cost of living higher and higher, which creates pressure on organizations to increase wages. Workers will also feel pressured to seek out the most lucrative jobs possible and may no longer be able to justify mission-driven work that does not pay as much as the private or public sector. This could create a nonprofit labor shortage, as the pool of interested applicants shrinks and demand for higher wages rises.
How you can prepare: While there isn’t much you can do to stop the demand for higher wages, you can address this by investing in team retention and commitment, either by offering training or bonuses for long-term employees or by offering greater flexibility and other benefits. One way could be offering fully remote work, as this allows employees to cut down on the fuel costs of commuting, the cost of childcare, and other expenses. If you foresee or are already seeing budget shortfalls, you can also discuss what elements of your organization you deem essential for the mission and reorient your team around these.
Impact on Organizational Expenses
In addition to general inflationary pressure, the targeted nature of the conflict could create even larger increases in the costs of particular goods. The impact on the global supply of fertilizer, urea and ammonia, all essential for industrial agriculture, is projected to increase food costs by up to 1.5%. There is also potential for a disruption in the pharmaceutical industry as the war drives up the costs of raw materials, which could cause employer insurance plans to become more expensive, especially if the federal government decides to cut healthcare funding to defray the cost of the war.
Even basic office supplies like ink and paper, office furniture, electronics, and other goods have the potential to rise, stretching nonprofit budgets. While there is long-term potential for a shift away from globalized supply chains towards local production, this will happen slowly and only in particular sectors, and only if the war continues or expands.
How you can prepare: Taking an internal assessment of what supplies and services your team values most and least can help you lower the impact of any funding cuts. As you cut programs, you can work to provide transparency about each decision and explain why it’s necessary, as changes will be easier to accept and worth with if your team understands them as necessary for the continuation of the mission.
The conflicts and disruptions shaping today’s economy are largely outside any nonprofit’s control, but how your organization responds is not. By taking stock of your funding sources, investing in your team, and trimming non-essential expenses now, you can position your organization to weather the uncertainty ahead. The nonprofits that come through this period strongest will be those that acted early, communicated clearly with their stakeholders, and stayed focused on what matters most: the mission.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
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