How the Iran conflict could impact construction costs, fuel prices and projects

By John Kenney III, advisor to Commercial Roofing Contractors, Cotney Consulting Group.

In uncertain markets, the most disciplined contractors focus less on predicting prices and more on protecting assumptions.

Over the past several weeks, headlines have been dominated by escalating conflict in the Middle East. Missile strikes, attacks on energy infrastructure and disruptions to shipping in the Persian Gulf have pushed oil markets into a new period of volatility. For many observers, this appears to be just another geopolitical crisis. But for contractors and construction businesses, these developments carry real operational consequences. 

The global construction industry sits directly downstream from energy markets. Fuel costs influence transportation, manufacturing and logistics. Interest rates influence project financing. Supply chains react quickly when global uncertainty increases. 

The question contractors should be asking right now is not simply what is happening in the Middle East. The more important question is this: What could these developments mean for construction operations over the next 90 days and the next six months? Several signals are already beginning to emerge. 

The headline everyone sees: Energy market volatility 

One of the most immediate effects of the conflict has been pressure on global oil markets. The situation is particularly sensitive because a large portion of the world’s oil supply moves through the Strait of Hormuz. Roughly one-fifth of global petroleum trade passes through this route each day. 

Any disruption — whether through military activity, tanker attacks or insurance restrictions — creates uncertainty in global supply. Even when oil continues to flow, the perceived risk alone can drive prices higher.

Diesel fuel has reacted particularly quickly. Diesel powers freight trucks, construction equipment, rail networks and maritime shipping. When diesel prices rise, transportation and logistics costs rise with them. For contractors, diesel is often the first signal that broader cost pressures may follow. 

The signals contractors may be missing 

While oil prices receive most of the attention, several other economic indicators are beginning to move quietly beneath the surface. 

Shipping and insurance costs

Shipping companies and insurers are already reassessing risk levels for vessels moving through the Persian Gulf region. War-risk insurance premiums have begun to increase, and some shipping operators are avoiding the region entirely. Even if supply routes remain open, higher insurance costs translate into higher shipping rates. Those cost increases eventually flow into the price of imported materials and petrochemical products used throughout construction. 

Roofing membranes, insulation products, coatings and plastics all depend heavily on petrochemical production, which is tied directly to oil and natural gas markets. 

Treasury yields and financing 

Energy shocks historically push inflation expectations higher. When inflation risk increases, investors demand higher returns on government bonds. Rising yields in the U.S. Treasury market can translate quickly into higher borrowing costs for: 

• Commercial real estate development 
• Equipment financing 
• Infrastructure projects 
• Municipal construction

For contractors, this does not stop projects immediately. However, it can slow new project starts as developers reassess financing conditions. 

Commodity and industrial supply chains 

Energy disruptions ripple across multiple industrial sectors. Aluminum, steel, chemicals and transportation costs all respond to changes in energy prices. Contractors rarely see these increases immediately. Suppliers typically begin adjusting pricing 30 to 60 days after energy costs move significantly. 

That delayed reaction is one reason experienced contractors pay attention to macroeconomic signals long before price increases reach job sites. 

What historically happens next 

After decades in the construction industry, one pattern appears consistently following energy shocks. 

First, fuel and logistics costs begin to rise. Next, suppliers introduce selective price adjustments. Then financing becomes more expensive as interest rates respond to inflation pressures. The final stage often appears months later, when developers begin postponing or re-evaluating speculative projects. 

None of these shifts occur overnight. But they tend to unfold in a predictable sequence that experienced contractors learn to recognize. 

The 90-day outlook 

Over the next three months, contractors are most likely to experience continued volatility rather than dramatic disruption. 

Diesel prices may remain elevated as energy markets respond to ongoing geopolitical developments. Transportation and freight costs could rise modestly as shipping insurers adjust risk premiums. Material price increases may begin to appear selectively in products connected to petrochemical production and global shipping. At the same time, many construction sectors still maintain strong backlogs. Existing projects will continue moving forward, and most contractors should not expect immediate cancellations or widespread delays. 

The six-month outlook: Two possible scenarios 

The longer-term outlook will depend largely on how the geopolitical situation evolves. 

Scenario one: Stabilization 

If tensions ease and energy supply routes remain open, oil markets could gradually stabilize. In that case, the construction industry may experience only modest cost adjustments. Project backlogs would remain strong, and new development activity would continue at a steady pace. 

Scenario two: Prolonged disruption 

If shipping routes remain threatened or energy infrastructure continues to be targeted, sustained oil price volatility could push transportation and manufacturing costs higher. Combined with rising interest rates, that environment could slow new project development and tighten financing conditions for large commercial construction projects. Even under this scenario, the impact would likely develop gradually rather than suddenly. 

What this means for estimating and margin protection 

Periods of energy volatility often expose weaknesses in estimating assumptions. When fuel, transportation and supplier costs begin moving quickly, small estimating errors can compound across a project. 

Contractors should pay close attention to the assumptions embedded in their estimates over the next several months. Freight costs, equipment fuel consumption, material lead times and supplier pricing adjustments may begin shifting faster than they have in recent years. 

This does not mean contractors should assume widespread cost escalation. However, it reinforces the importance of clearly communicating assumptions in proposals and contracts. 

Experienced estimators often include language outlining the basis for fuel pricing, material availability and supplier quotations. If conditions change rapidly, those assumptions help protect both margins and relationships with customers. In uncertain markets, the most disciplined contractors focus less on predicting prices and more on protecting assumptions. 

The bottom line 

Global events may feel distant from day-to-day construction operations, but the industry has always been closely tied to energy markets, transportation costs and financial conditions. The current geopolitical situation is a reminder that external events can influence construction economics in ways that are not immediately visible. 

For contractors, the key is not to react emotionally to headlines but to watch the underlying signals that affect cost structures, financing and project demand. Those signals are beginning to move again. And the contractors who pay attention early are usually the ones best positioned to navigate whatever comes next.