Global turmoil returns to test construction’s resilience

It’s happening again. Just as we think the economy is about to take off, war breaks out. Almost exactly four years ago we were writing about Russia’s invasion of Ukraine and the impact on energy prices and inflationary pressures on business.

A sense of déjà vu is unavoidable, as any fragile economic optimism that existed at the start of this year risks being crushed beneath the weight of the conflict between Iran and US-Israeli forces.

For the first time in four years the price of oil per barrel topped $100, at the start of the week, driven by attacks on Iranian infrastructure, a near‑shutdown of shipping through the Strait of Hormuz, and an escalation of attacks over the weekend. Higher oil prices along with Consumer Price Index inflation reopens the debate on whether interest‑rate cuts can be delivered at all this spring.

Noble Francis at the Construction Products Association has warned that any cuts would be delayed “at the very least” and believes this could push the government towards more tax rises, given the downgraded GDP forecast and pressure on Treasury revenues.

Once again the construction sector finds itself exposed to global turbulence beyond its control 

A near-term concern is the impact on construction products, with around a quarter being imported and a large share coming from China, which is heavily reliant on Iranian oil. Add rising transport and energy inputs, and energy‑intensive materials such as steel and concrete will feel the cost pressure first. That’s before you factor in a potential spike in the cost of liquefied natural gas, which Simon Rawlinson at Arcadis has said could lead to a “very quick” rise in energy costs.

The risks in war are far from abstract, they are very human. This crisis is devastating for the people directly affected by the fighting. It is also an anxious time for British staff who find themselves stranded. Louise Ellis, Gleeds’ global chief people officer, is one of thousands of Britons caught up in the war while on a business trip. She has spoken to us about times when she felt her life was in danger. Yesterday, she though she might finally have found a flight back.

Ground engineer Keller has also spoken about disruption to projects in the Middle East where it has 500 people working in the region across Saudi Arabia, the UAE and Bahrain. Keller’s chief executive James Wroath described how many staff are now working remotely, saying it feels “almost back to covid conditions” – a reminder of how global events can instantly halt project progress.

Amid all the turmoil it is hard to see a way forwards. But some can. Nick Maclean, president of the RICS who also spent over 20 years in the UAE working for CBRE, in an interview pubished today, says that despite the conflict, the professionals permanently working in the region remain calm. He acknowledges for some the experience may mean it is not the place they want to live or do business, but having talked to a lot of contacts over the past couple of weeks he has not heard about widespread panic or a desire of ex-pats to return to the UK.

One view is that this is another test of the resilience of those living and working in the Middle East. Maclean cites multiple financial crises – from the 2008 credit crunch, to the violence and conflicts in 2013 following the Arab Spring demonstrations and covid in 2020 – and says each time the Gulf nations have showed an “uncanny knack” for bouncing back. People in the region, he says, are confident the same will be true this time.

Underpinning his own confidence is a belief that the Middle East development boom will continue and so will demand for British skills, qualifications and construction talent, particularly in Saudi Arabia and the UAE. It feels optimistic while in the middle of the chaos and uncertainty but it is a fast-moving situation and it could pan out that way if the conflict can be resolved relatively quickly – on Tuesday the president of the United States was claiming the war will end “very soon”, which may be typical Trumpian grandstanding but at least indicates that he is alive to the dangers of his own popularity sinking further into the mire.

What is not in doubt is that once again the construction sector finds itself exposed to global turbulence beyond its control and feeling the effects of disrupted trade routes, higher inflation and stalled progress. The hope is that the businesses that have survived past upheavals do now have proper resilience planning in place. In a world where a campaign of missile strikes can reshape markets overnight, this is no longer optional.

We have said for a long time that global volatility is the new normal; construction has to prepare accordingly. 

Chloë McCulloch is the editor of Building