Middle East Conflict Drives Up Energy Costs for Construction Firms

The ongoing Middle East conflict is escalating energy risks for construction firms, causing higher expenses in transportation, machinery operations, and buying energy-intensive goods. The war has expanded beyond the critical Strait of Hormuz and now involves the Bab el-Mandeb Strait, a Red Sea chokepoint into the Gulf of Aden along the borders of Saudi Arabia and Yemen.

The conflict's status is ominous for US energy prices, especially as one-time maneuvers to dampen energy price shocks have largely been exhausted. The oil that was in transit has long since been processed and consumed, and the US strategic petroleum reserve (SPR) held only 285 million barrels of oil as of early September, its lowest level since it was first filled in the early 1980s.

The SPR's buffer against energy price shocks has largely been depleted, leaving the market to reflect a harsher reality. As a result, US national diesel prices have soared past prior all-time highs, and construction firms are bidding projects cautiously with the expectation that energy prices will remain elevated.