With all eyes on the ongoing conflict in the Middle East, United Parcel Service (UPS +2.30%) investors will be wondering how the conflict could affect the company in 2026. The answer is that there could be a significant impact, but perhaps not in the way that many investors think. Here are five things investors should keep in mind about UPS.
1. and 2. UPS, oil prices, and fuel surcharges
With oil prices spiking due to the conflict, it's natural that investors might be concerned about UPS' fuel costs. In reality, UPS does have exposure to fuel costs, but perhaps not in the way most investors think. First, fuel costs of $4.3 billion in 2025 accounted for only 5.3% of its total operating expenses of $80.8 billion.
Image source: Getty Images.
Second, UPS applies fuel surcharges weekly based on jet, kerosene, and diesel fuel prices. Moreover, in recent years, the fuel surcharge has more than offset fuel costs. In other words, UPS fuel surcharges aren't just reflecting fuel cost changes; they've become a net contributor to profit margins.
If that continues in the current environment, then higher fuel prices, all things being equal, could be a net benefit to UPS.
|
UPS Metric |
2024 |
2025 |
|---|---|---|
|
Fuel cost change |
($409 million) |
($50 million) |
|
Fuel surcharge change* |
($270 million) |
$282 million |
|
Difference |
$139 million |
$332 million |
Data source: UPS SEC filings. *Domestic segment surcharges.
3. All things are not being equal
While direct fuel costs aren't a major problem, UPS is likely to suffer in the current environment. The company purchases transportation from third-party carriers, which accounted for 13.1% of its costs in 2025. Given a protracted increase in fuel costs, these carriers will likely raise their surcharges, leading to a corresponding increase in purchased transportation costs.
4. Rerouting traffic will also increase costs
Disruptions in the Strait of Hormuz and other key Middle Eastern transport corridors, including the Jebel Ali port in Dubai, will likely increase UPS's costs, primarily through higher purchased transportation expenses.
5. UPS could see demand destruction
Global trade conflicts, specifically those that cause inflation, are not good news for package delivery companies. Of particular note, UPS's small- and medium-size-business customers are already experiencing the impacts of tariffs on their businesses as they adjust product sourcing.
NYSE: UPS
Key Data Points
Moreover, many of them will have reduced previously acquired inventory through 2025, and the last thing they need right now is more trade disruptions amid inflation. Consequently, UPS could see some impact on delivery volume in the quarter.
UPS in 2026
The conflict is highly likely to adversely affect UPS stock in 2026, but it's hard to tell how lasting the impact will be. On a positive note, UPS could likely handle relatively high oil prices if trade lanes reopen and inflationary pressures abate, but a combination of all three difficulties will hurt its volume and profitability, making it a stock exposed to a protracted conflict.
