The crisis in the Middle East is already affecting the construction market in the UK by creating uncertainty around work pipelines and increasing the risk of higher input costs and tender prices.
These impacts are becoming more tangible and, even if the crisis were to end tomorrow, would be felt for some time. If you work in construction procurement, where should you be focusing your attention right now and what proactive steps should you be taking?
Paul Beeston, Head of Industry and Service Insight for RLB in the UK, provides answers to some of the most pressing questions being raised by investors and developers, as well as timely advice to delivery teams on how to reduce risk to the viability and completion of projects.
What is the current situation facing the UK construction market?
In the Middle East Update we published in RLB’s latest Construction Market Intelligence (CMI) report soon after the outbreak of the conflict, we identified three potential scenarios:
- Short, contained conflict
- Prolonged disruption and regional risk
- Escalation and infrastructure loss
With the current ceasefire and stalemate between the US and Iran, it feels like we are hovering between the first and second of these scenarios, with some evidence of “immediate tender prices increasing more quickly than forecast” pushing us towards the latter.
In all scenarios, the watchword is volatility. Clients will need to manage the risk to their procurement strategies, and the impacts on input costs and tender prices will vary from sector to sector.
The current environment is undoubtedly more uncertain, but it is not unfamiliar after previous geopolitical shocks (eg Covid-19, Ukraine). Uncertainty has become part of the operating context rather than an exception.
The risk now may be as much in overreacting to volatility rather than managing it, and allowing short‑term pressure points to distort decisions. The priority should be measured judgement on risk, realistic pricing and timing, and staying anchored on delivery decisions that ultimately support clear project outcomes.
How will the Middle East crisis impact UK construction costs?
The impact of the Middle East crisis on prices in the UK construction industry has and will come from a mixture of factors, chiefly through increases in:
- Direct manufacturer costs – driven by uplifts in the costs of commodities and fuel,
- The cost of transport (including shipping),
- Labour costs – wages could be driven up by the impact on the cost of living, but tempered by market sentiment.
The first two factors are already being felt across supply chains. Labour cost inflation may follow, but this remains uncertain.
Alongside actual cost increases sits the subjective pricing of risk and uncertainty. The UK construction market’s preference for fixed‑price contracting means risk pricing often moves ahead of real cost data. However, if conditions stabilise, this risk premium should ease relatively quickly.
Which construction materials are likely to cost more because of the Middle East crisis?
It is energy-intensive and bitumen-derived materials along with imported products that are most at risk of inflation due to the crisis.
- Energy-intensive materials include aluminium (the Middle East is also a major exporter of raw aluminium in the form of billets and slabs), steel (including reinforcement), glass and cement.
- Bitumen-derived materials include asphalt used for road surfacing, plastics used for insulation and PVC products, and membranes used for sealing and damp-proofing.
- Imported products at risk from increased shipping costs include electrical wire, timber, lamps and fittings, air-conditioning equipment and ironmongery, which were the top five imported construction materials in 2025, according to analysis by the Office for National Statistics.
It should be noted that supply chains are often fragmented and price increases can be absorbed in the short term. Some price increases currently being reported may also be opportunistic pricing adjustments, ie profiteering, or hedging against future market conditions.
Furthermore, any increases should be placed in context of material cost movements seen over the preceding 12 months. These have been broadly static or have even decreased. For example, the Office for National Statistics reports a 0.2% increase in material indices for non-housing new work from January 2025 to January 2026, while steel reinforcement prices fell by 6.6% over the same period.
How will tender prices in UK construction be impacted by the Middle East crisis?
Tender prices are currently exposed to two opposing forces:
- On the one hand, input costs are being driven upwards by the rise in fuel prices triggered by the conflict, putting upward pressure on tender prices.
- On the other, work pipelines in some sectors are being driven down by reduced demand because of general economic conditions, which are weaker today than at the time of the Ukraine invasion and likely to be impacted further by underlying business confidence. This softening of demand will keep a lid on any tender price increases.
The impact of these conflicting tensions on tender price inflation will vary from sector to sector. Some sectors will also be less exposed to the impact of the conflict on investor confidence and interest rates, such as those where pipelines are made up of large programmes of critical infrastructure and public sector works with fixed schedules.
We expect some upward revision in our average industry-wide tender price forecasts as immediate cost increases hit, particularly for energy-intensive and bitumen-derived materials but before tendering adjusts to expected industry output. However, ‘all-in’ forecasts are likely to be too blunt a tool for accurate predictions at a project level where individual work content and sector pressures will need to be assessed.
The most likely forecast at the time of writing is that we will see two quarters of input cost spikes followed by some easing on tender prices thereafter.
In our CMI report, we anticipated that some softening demand was likely to come into play and impact tender prices later this year. If the current ceasefire holds, stabilisation of inflation and a return of interest rates to their trajectory from January 2026 is likely to take several months.
Which types of construction projects face the greatest risk?
Cost escalation risk is most acute in sectors where work content is highly exposed to inflation‑sensitive inputs and where client pipelines are resilient to demand‑side volatility, limiting the normal market mechanisms that would otherwise moderate pricing.
Other types of projects at risk include:
- Projects with longer two-stage negotiations or extended lead-in periods.
- Programmes with extended project durations.
- Any projects imminently converting tenders to contracts.
How should procurement strategies adapt to the changing dynamics of the market?
Key actions include:
- Be alert to fixed price and tender validity period constraints.
- Design out prolonged delays between tenders and contract awards – consider separating enabling packages and/or fit-out packages.
- Review how market-facing the risk balance of your projects are.
What if a project is about to convert a preferred tender into a contract award?
Recommended steps:
- Allow time for main contractor and subcontractor back-to-back arrangements and negotiations.
- Consider cost and schedule risks and potential risk mitigation and red lines.
- Prepare a contingency plan for stalled negotiations.
How should budgets reflect differences in inflation forecasts by sector and work content?
Recommended steps:
- Consider sector pipelines, size of contractor and work content to assess likely inflation rates in budgets.
- Engage budget holders on risk factors, risk planning and mitigation and align forecasts accordingly.
How quickly will things return to ‘normal’ if the Strait of Hormuz is fully opened to shipping?
Disruption to shipping routes and production schedules is likely to take months and not weeks to unwind. Logistics aside, the resumption of normality to transportation and supply chains will be dependent on how confident the market feels. The construction industry has demonstrated resilience before when the Red Sea was effectively closed through much of 2024, forcing shipping to divert around South Africa, yet projects continued to progress.
In practice, input costs in construction do not simply go into reverse as soon as pressures on the price and supply of commodities start to ease. Surcharges, revised terms and behaviours tend to linger, as risk is pushed around the supply chain and some parts of the market hold pricing at elevated levels while conditions allow.
In the short term, therefore, we can expect to see continued tender price volatility as contractors adjust to perceived risk. The impacts on work pipelines will also take time to recover. In the short term, consumer price inflation will likely pause any interest rates cuts that had been anticipated and the initial impact on the cost of mortgages and borrowing has been marked.
All this may mean a quarter or two of continuing delays and deferments in some sectors as investors and developers wait for an improved outlook on market conditions and project viability.
Read our latest data-driven insights on the UK construction industry in the Q1 2026 edition of Construction Market Intelligence.
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