Many market participants had hoped that the period of extreme spikes in building material prices following the crisis years of 2021 to 2023 was gradually coming to an end. Supply chains had stabilised, energy prices had fallen back in the meantime, and in many places a degree of planning certainty was returning.
However, these hopes are currently being dealt a significant blow.
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Unlock content Accept the required service and unlock contentWhilst the public debate focuses primarily on the geopolitical consequences of the conflict in the Middle East, the economic repercussions have long since become apparent elsewhere: on German building sites.
Rising diesel prices, higher transport costs and massive price surges for oil- and energy-dependent building materials are putting many cost estimates under pressure once again. For construction companies, project developers, investors and public sector clients, the situation is increasingly becoming a serious challenge.
The crucial question is therefore no longer whether the conflict will have an impact on the construction industry. The question is rather just how severe these pressures will ultimately be.
Why a conflict in the Middle East is affecting German construction sites
At first glance, the connections may seem remote. In reality, however, the economic repercussions are playing out through several channels simultaneously. The most important factor is energy prices.
The region around the Persian Gulf is one of the world’s most important energy hubs. Often, the mere fear of supply disruptions is enough to cause oil and gas prices to rise significantly. This is precisely what has been observed in recent months.
This is particularly problematic for the construction industry, because energy is not only a cost factor in its own right, but is also present in virtually every building material.
From production and transport right through to the operation of machinery, large parts of the value chain depend directly or indirectly on energy prices.
When oil and gas prices rise, it is therefore not only fuel that becomes more expensive, but often entire categories of building materials as well.
The second wave is coming via the supply chains
Added to this is another effect that is often underestimated. The Strait of Hormuz is one of the world’s most important trade routes. A significant proportion of global oil and gas exports passes through this strait. As soon as uncertainty arises there, it is not just the commodities markets that react.
Insurance companies, shipping lines and logistics firms also factor in higher risks. The result is rising freight rates, higher transport costs and longer delivery times.
For the construction industry, this means that imported materials come under additional pressure. Even building materials that are not directly derived from crude oil can become more expensive as a result.
It is precisely this combination of higher energy costs and rising transport costs that makes the current situation so problematic.
Why the effects will not disappear after a few weeks
Many market participants are hoping for a swift easing of the situation. However, several factors suggest that the consequences could be felt for much longer.
Particularly critical is the damage to key energy infrastructure in the Gulf region. Industry observers believe that some facilities may not be fully operational for years to come.
Even if the geopolitical situation stabilises in the short term, this does not automatically mean a return to previous price levels.
The construction industry must therefore prepare for an environment in which energy remains more expensive and supply chains more vulnerable than in previous years.
Which building materials are particularly affected
Materials whose production is directly dependent on crude oil are currently under the greatest pressure. Bitumen is a particularly good example of this.
Bitumen is a key component of roof waterproofing, asphalt and numerous construction products used in civil engineering and infrastructure projects. As it is derived directly from crude oil, its prices are particularly sensitive to changes in the energy markets.
Rising bitumen prices therefore have an almost immediate impact on road construction projects, waterproofing works and numerous infrastructure schemes.
Furthermore, some market participants are already reporting limited supply options. The challenge, therefore, lies not only in price but also, to some extent, in availability.
Diesel is once again becoming a cost driver
Alongside bitumen, diesel is emerging as one of the most significant risk factors for the sector. Hardly any other sector of the economy is as heavily dependent on diesel as the construction industry. Construction machinery, lorries, the transport of materials and large parts of site logistics continue to rely on fossil fuels.
Rising diesel prices therefore have multiple effects. They make the operation of machinery more expensive, increase transport costs and indirectly impact numerous services throughout the entire value chain.
For many companies, this represents a burden that goes far beyond the mere cost of fuel.
The price surge is now affecting the entire building construction sector
Anyone who, when thinking of rising energy prices, initially thinks only of road construction or civil engineering is missing the bigger picture. Almost all major categories of building materials are now coming under pressure.
The production of cement, steel, aluminium, copper and insulation materials is among the most energy-intensive industrial processes of all. Rising energy prices therefore almost inevitably have an impact on production costs.
In the cement sector in particular, many market participants are watching developments with concern. The industry has already had to cope with significant cost increases in recent years. Additional pressures could now trigger the next round of price rises.
As a result, these current developments are increasingly affecting traditional building construction projects as well.
Why the situation could become dangerous for construction companies
The situation is becoming particularly critical for companies that are already operating on slim margins.
Many construction firms have calculated the costs of their ongoing projects on the basis of significantly lower price assumptions. The contracts were signed before the current developments became apparent. That is precisely where the risk lies.
Material costs are rising in the short term, delivery times are lengthening, and there is often only limited scope for passing on these additional costs to clients.
Small and medium-sized enterprises in particular are coming under pressure as a result. This could lead to a further increase in the already rising number of insolvencies in the main construction sector.
Why old cost estimates can suddenly become worthless
One of the greatest risks at present lies in outdated assumptions.
Many project cost estimates are based on market conditions that no longer exist. Supply chains are more volatile, prices change more rapidly and suppliers are more cautious in their cost estimates than they were just a few years ago.
Anyone planning today with the same margins as before the crisis runs the risk of systematically underestimating the risks. The days when a cost buffer of just a few per cent was sufficient are likely to be over for the time being.
What project developers and clients should do now
In a volatile market environment, professional risk management is becoming significantly more important.
This involves, first and foremost, reducing reliance on individual suppliers and establishing alternative sources of supply. A broader procurement strategy can prove crucial later on, particularly when it comes to critical materials.
Equally important is realistic costing. Projects scheduled for implementation in 2026 or 2027 often require significantly larger time and cost buffers than was the case a few years ago.
Furthermore, it is worth keeping an eye on leading indicators. Oil prices, LNG markets, freight rates and insurance premiums often react much earlier than the actual prices of building materials. Those who monitor these developments can often spot new price surges weeks or even months in advance.
Last but not least, communication is becoming increasingly important. Open discussions between clients, project developers and contractors often lead to better solutions than subsequent renegotiations under time pressure.
The real strain may still be to come
One important point is often overlooked in the current debate.
Many price rises have not yet fully filtered through to the building materials markets.
Numerous supply contracts are subject to a time lag. Manufacturers often pass on higher costs to the market only gradually. This creates a lag effect that may only become fully apparent in the coming months.
There is therefore a risk of further price rises, particularly for energy-intensive building materials.
Conclusion: The construction industry is facing its next test
The conflict in the Middle East has long since ceased to be merely a geopolitical issue. Through energy prices, supply chains and transport costs, it is now having a direct impact on the German construction industry.
Building materials dependent on oil and energy are particularly affected, but the repercussions extend far beyond this. Rising costs, uncertain cost estimates and fragile supply chains are increasing the pressure on an industry that is already struggling with weak demand and difficult financing conditions.
For project developers, construction companies and investors, this leads to one key realisation: the coming months will be characterised less by optimism than by risk management.
Those who identify cost trends early on, build in sufficient reserves and adapt their procurement strategy will weather this market phase far better than those who are hoping for a swift return to normality.
