Escalating tensions in the Middle East are now feeding directly into construction costs, with surging fuel and energy prices seen as the biggest threat to already fragile project margins.

A joint alert from the Builders Merchants Federation and Construction Products Association reveals the conflict is driving a sharp rise in transport and production costs across the supply chain.

Merchants, house builders and contractors say surcharges are already landing with little warning and limited justification, adding further uncertainty to pricing at tender stage.

According to the Construction Leadership Council’s material supply chain group, steel is now a key flashpoint, with prices moving so quickly that some firms are struggling to secure firm quotes, making project pricing increasingly difficult.

Fuel prices have jumped rapidly, with diesel up by over 20% in recent weeks, hitting plant hirers and civils contractors compounding already tight finances after months of wet weather.

Manufacturers and distributors warn that the fuel spike is feeding through into delivery costs and is expected to persist even if tensions ease.

At the same time, energy prices are climbing fast, creating immediate pressure on manufacturers of energy-intensive materials such as cement, bricks and steel.

While some firms are temporarily shielded by hedging, the increases are expected to filter through into higher material prices in the coming months.

“In the mechanical engineering sector, commodity prices such as copper were already increasing before the conflict, and steel is now the biggest concern.

“The government’s newly published steel strategy is also creating uncertainty. While there may be some benefits, there are worries about potential implications for imported goods,” warns the supply chain group.

“Cost volatility is closely monitored, with steel availability and pricing standing out as the most significant risks,” says the report.

Global disruption is compounding the problem. Shipping routes from the Far East are being diverted around the Cape, pushing freight costs up by as much as 100% and extending delivery times, further inflating costs for imported products.

As costs are passed along the supply chain, profit margins will be squeezed at every level.

Such pressure then increases the contracting tiers of the supply chain, with SMEs being particularly vulnerable. The stability of supply-chain finances is, therefore, fast becoming an urgent issue that this Group is monitoring.

In the face of these challenges and uncertainty, the CLC group strongly advocates that now more than ever, the industry should use this time to plan, work collaboratively, and share forecasts and requirements early with everyone involved.