Iran Conflict Impact
At present, direct disruption to the supply of construction products and materials is expected to remain limited. However, the most significant risk comes from rising energy costs, which are already feeding through into broader inflationary pressures. Global oil and gas markets have experienced sharp volatility as a result of the conflict, with disruption to key supply routes such as the Strait of Hormuz, through which around 20% of the world’s oil passes, driving up wholesale prices.
Recent data shows that oil and gas prices have surged significantly, with UK gas prices rising sharply and oil exceeding $110 per barrel in some cases. This has led economists to revise inflation forecasts upwards, with UK inflation now expected to remain above the Bank of England’s 2% target and potentially approach 3% or higher by the end of 2026 if energy prices remain elevated.
Higher energy costs are already affecting energy-intensive industries and are expected to filter through to construction via increased manufacturing, transport and on-site operating costs. Industry analysis suggests this could place upward pressure on construction prices and potentially slow the pace of housebuilding if sustained.
More broadly, the economic outlook has weakened as a result of the conflict. Forecasts indicate that higher energy prices and inflation could reduce UK GDP growth by around 0.2 percentage points in 2026, while also contributing to higher interest rates and borrowing costs. This creates additional challenges for both developers and clients, particularly in relation to project viability and financing.
Against this backdrop, Members are encouraged to review their contracts carefully, with particular attention to provisions covering cost escalation and inflation risk during project delivery.
The Government is also advising businesses with operations or personnel in the region to ensure that any UK nationals are registered with the Foreign, Commonwealth and Development Office (FCDO), so they can receive appropriate support and updates.
If your business is experiencing any impacts from the conflict, please report them to [email protected]