Iran Strikes Stir Uncertainty Over Oil, Construction Costs

While the geopolitical consequences of the Israel and the US attack on Iran during the weekend are yet to become apparent, the economic shock is taking shape. The most immediate impact is expected to be felt in oil prices, flowing directly into higher freight and transport costs, according to Rider Levett Bucknall Oceania director of research and development Oliver Nichols. That risk is amplified by Iran’s influence over the Strait of Hormuz, a critical global oil supply route. Oil price surge The world looks closely at conflicts in the Middle East given that it produces 27 per cent of global supplies of crude oil. Iran itself supplies around 4.5 per cent of oil and gas production, exporting 1.5 per cent of that. Generally a US$10 rise per barrel equates to around a 10-cents-a-litre increase in Australian petrol prices, so the predicted US$40 rise would add another 40 cents to prices at the pumps. And if a 40c rise happens, 0.8 per cent would be added to Consumer Price Index inflation, according to AMP head of investment strategy Dr Shane Oliver. ▲ Quantity surveyor and Mitchell Brandtman partner Tass Assarapin. And while risks escalated last year after US airstrikes on Iranian nuclear facilities in June, this time around may be different, Oliver says ,“resulting in a sharper and longer spike in oil prices”. The overall expectations are similar to the impact of the Russia and Ukraine conflict when it began in 2022, Mitchell Brandtman partner Tass Assarapin says. “Materials are not moving in one direction across the board,” Assarapin says. “However, fuel will be the commodity increasing in cost that will then have a flow-on effect to the majority of construction materials being imported into Australia. “Subdivisions, for example, rely on fuel [due to truck movement], so a potential 40c increase in fuel could drive costs up substantially.” Supply chain impacts While fuel is the obvious issue, it’s a little early to tell the exact impact on costs and construction in general, Nichols says, and it will also depend on how long the conflict continues. “Supply chains from the UK and Europe to and from Asia and Oceania will likely avoid the Suez and be routed around the Cape of Good Hope,” Nichols says. “This adds approximately 14 days to an Asia-Europe voyage and effectively removes 10 to 15 per cent from global container capacity.” ▲ RLB Oceania research and development director Oliver Nichols. Altus Group head of development advisory Asia Pacific Niall McSweeny agrees and says price impacts typically take time to flow through supply chains. “Where we may see immediate pressure is in supply chains and shipping. Any conflict that disrupts major trade routes could increase container shipping costs or extend transit times,” he told The Urban Developer . “We’ve seen similar scenarios before such as the Ever Given blockage of the Suez Canal [in 2021] and heightened attacks on shipping in the Red Sea. The immediate impact is likely to be logistical causing delays in delivery timelines, rather than material cost increase at this stage.” So transport costs should be expected to rise as a result, which will ripple through the supply chain. However, it is unlikely that a jump in petrol prices would lead to inflation expectations moving higher, Nichols says. “[But] if the war continues for a while, it will drag on business and consumer confidence, which could weigh on economic activity,” he says. “This will lower economic growth forecasts, which may mean the Reserve Bank is less inclined to raise rates further.” What developers can do to mitigate price rises While developers can’t control geopolitical risk, McSweeny says they can control their exposure. “Strategies [could include] locking in prices early, diversifying suppliers, building contingencies into feasibilities, and ensuring contracts properly deal with delivery delays and cost increases,” he says. Developers should consider early procurement or the re-deployment of resources, Nichols says. “[They should consider] shared or retained risk where risk is unavoidable or unmanageable such as via provisional supply costs,” he says. Identifying alternative selections and supply chains for impacted materials is also recommended, as is building this volatility into development models. ▲ Costs will not rise across the board, but some construction materials, including copper, are likely to increase in price. “[Developers and builders could also] maintain procurement flexibility, and consider local supply alternatives or indexation or rise-and-fall clauses,” Nichols says. These clauses can protect from unexpected and significant changes in expenses after signing a contract, especially given the expected construction cost rises above and beyond those linked to the conflict in Iran. Construction cost escalation The latest warnings come on the back of Altus Group’s fourth quarter construction price outlook revealed last month that highlighted copper as the next price shock. The price of copper is predicted to rise 16.5 per cent year-on-year, driven by global electrification, grid investment and a massive shift towards data centre delivery. Copper prices passed US$13,000 per tonne in early 2026. Copper demand is expected to rise from 28 million tonnes in 2024 to 42 million tonnes by 2040, therefore the annual deficits could reach 10 million tonnes. China consumes half of the global supply, Altus said. Elsewhere, structural steel and rebar have experienced price stability following weak Chinese construction demand, but proposed tariffs following anti-dumping scrutiny could tighten local supply and interrupt this, according to Altus. ▲ The picture is divergent across the country with Melbourne and Sydney experiencing less escalation than Brisbane. Concrete costs continue to climb, due to infrastructure demand, while timber has remained relatively stable although local industries warn of lower-grade Chinese timber joinery projects making their way to Australia. Brick prices remain elevated, Altus said, but plasterboard has trended higher. Altus is predicting between a 4.5 to 7 per cent increase in construction costs across Australia. Meanwhile, Mitchell Brandtman forecast around 4.5-6 per cent this year as an increase compared to 2025. Two-speed across geography Across Australia, Brisbane is expected to remain the “escalation hotspot” through to 2027, due to Olympic-related infrastructure works in the pipeline, including a $3.8-billion stadium, supply chain pressures and “persistent” labour shortages. Construction costs increases in the Queensland capital will remain above 7 per cent, Altus forecast, the highest in the country. Mitchell Brandtmann indicated a slightly lower but elevated up to 4 per cent increase for Queensland, predominantly in multi-residential. ▲ Major infrastructure projects including the Victoria Park stadium will hike construction costs up in South-East Queensland, Sydney and Melbourne price rises have however decelerated slightly, which Altus blamed on “weaker construction pipelines and fewer major project starts”. While the situation may not be as dire as it seems , the number of new homes completed in Victoria was at its lowest level since 2014, according to Australian Bureau of Statistics data from earlier this year. Things appear a little brighter too in NSW, where, for the 12 months to the end of September 2025, there were 47,198 commencements for the year, an increase of 4186 on the previous year.

Iran Strikes Stir Uncertainty Over Oil, Construction Costs

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