What is the impact of the 2026 Iran war on the UK construction industry?

On 28 February 2026, the United States and Israel launched military strikes on Iran.

Immediate repercussions were felt across the globe as oil and gas prices soared and maritime traffic through the Strait of Hormuz was stymied. This huge disruption to energy trade shocked the global market. Now, two months later, we take a look at how the ongoing war is affecting the UK construction industry by analysing the conflict’s impact on rising material costs, reworking supply chains, and risk allocation across construction projects.

Immediate global price hikes

The widely reported initial global price hikes of oil trading at over $100 a barrel and liquefied natural gas nearly doubling were some of the sharpest jumps observed in decades. Whilst the surge in oil and gas prices has been well recognised, it is equally important to note that key construction materials are also reaching multi-year highs. As a result of Iranian strikes on shipments from smelters in Qatar and Bahrain, which together account for nearly 10% of world aluminium output, aluminium has hit a four-year high. Similarly, other highly energy dependent commodities, such as steel, copper and cement, have all seen rapid inflation. Even polyvinyl chloride (PVC), a plastic integral to pipes and cables, is in short supply, with reports coming out from Australia recently that prices have risen by more than 30% due to petrochemical supply chain disruption.

UK impact

Although UK construction companies primarily source materials from domestic and European suppliers, the repercussions of the conflict in the Middle East are now being fully felt more acutely across the sector. Initially, the immediate surge in oil and gas prices directly impacted energy intensive UK manufacturers such as brick kilns, cement plants, and glass factories. However, the indirect consequences are now becoming more pronounced. For instance, while the UK relies little on shipments passing through the Strait of Hormuz, China does. The UK imports most of its products from China and China purchases 90% of Iran’s oil. As a result, Chinese manufacturing costs have soared, and UK importers of Chinese made products, like lighting and electronics, are now facing increased costs due to these supply chain disruptions. Where UK projects are procuring goods directly from the Middle East, multi-week delays are already being reported. Contractors are citing additional one-two week delays on certain imports as vessels are having to queue to take longer routes around the Cape of Good Hope.

Prospects of lower borrowing costs fade

With geopolitical uncertainty at an all-time high, rising costs, and a loss of confidence in the markets, there is a consensus forming across developers to ‘wait it out’. Before war broke out in the Middle East, Bank of England interest rates appeared to have peaked in early 2024 and the cost of borrowing was diminishing. As a general rule of thumb, when borrowing costs are low, this catalyses economic activity. However, the Iran war has put a pin in this trend. Although the base rate did not change in March, the Bank of England announced it would have cut the base rate but for the Middle East conflict. Economic forecasts are now anticipating higher inflation than predicted before 28 February 2026, which may continue to tether interest rates. Those construction companies that were holding out on financing large projects until rates fell in late 2026 (as they were initially forecasted to do) now find themselves stuck between the proverbial rock and hard place.

A hostile environment for construction projects

This is creating a hostile environment for construction companies to navigate, as they now face the combination of rising prices, shortages in supplies, and higher interest rates to pay back any borrowed funds. Anecdotes from Ireland are already emerging that small developers are pausing new housing projects until price clarity improves. This mirrors UK sentiment to hold fire on some new projects until volatility stabilises.

Major UK house builders are now issuing stark warnings that the war’s economic fallout will push them into a debt crunch due to eroding profit margins. Mid- sized contractors are similarly under pressure. They are facing significantly higher material costs after bidding for jobs at 2025 prices, where many cannot easily pass on the difference. There is no doubt that if a ‘wait and see’ approach does indeed gather steam, there will be severe ripple effects felt all the way down the supply chain as subcontractors and suppliers order books slim down.

The resilience of UK construction

UK companies are showing their resilience by adapting in a number of ways to try to protect their businesses. To mitigate potential supply chain delays, some UK companies are switching to air freight for critical small components. However, due to the cost and capacity, air freight isn’t a scalable option for bulkier materials and larger orders.

UK suppliers are starting to stockpile commonly used materials like rebar, ply and plastic fittings to hedge against price uncertainty. There is also an industry wide pivot to placing orders earlier, substituting materials in projects where possible, and even negotiating price capped agreements with European suppliers for critical materials to reduce exposure.

As part of their mitigation efforts, UK companies are increasingly looking to rely on contractual protections and specialist legal advice to help manage escalating costs and ensure risks are allocated appropriately. Some UK contractors have already issued early notices of delay citing force majeure, seeking to put clients on notice that the conflict could cause delays and disruption and to reserve their rights in relation to extensions of time. However, such claims should be carefully and properly scrutinised. Any notice of delay must clearly demonstrate specific project-related impacts. A blanket statement of delay and/or disruption will not suffice.

Some developers are drafting new clauses into new contracts to deal with geopolitical risks. Drawing parallels to ‘pandemic clauses’ post COVID-19, there are now some clauses being written that expressly address ‘global events’, with a mechanism for both ‘time’ and ‘money’. Although this may help get some projects off the ground, and is certainly a step towards collaborative risk sharing, this approach may not always be palatable or appropriate for different construction projects.

Conclusion

In conclusion, the Iran war has introduced significant challenges for the UK construction industry, many of which are already being felt on the ground. The extent to which these challenges persist or worsen will depend on how the geopolitical situation evolves in the coming months. For now, construction firms should brace for strong headwinds and a period of heightened uncertainty. However, by balancing caution with flexibility and possibly considering some of the mitigation measures listed in this article, the industry can chart a steady course through the storm, just as it has managed to weather turbulent times before.

The Birketts view

Global volatility of this kind tends to expose the difference between risk that is recognised in principle and risk that is properly allocated and managed in practice. For businesses operating in this environment, the commercial priority is to preserve flexibility at the procurement stage and to maintain contractual cohesion during delivery. In our experience, early, pragmatic legal input, whether during contract negotiation, live project decision making, or when potential disputes arise, can help put spades in the ground and keep projects moving.