“How Current Wars are Affecting the UK Construction Industry”
The global economy, already rattled by elevated inflation, is now facing another geopolitical crisis in the Middle East after the surprise attack of Hamas on Israel and subsequent
declaration of war by the latter. The fallout of Israel-Hamas war on the global economy may take time to become clear but would become more severe if the conflict spreads to the rest of the Middle East, especially Iran, which is both a major oil producer and supporter of Hamas.
Crude oil prices have surged sharply as the tensions escalated in the Middle East, home to almost a third of global oil supply. Brent crude rose 3.44% to $87.49 a barrel, while US West Texas Intermediate crude rallied 3.85% to $85.98 a barrel. However, the crisis is unlikely to pose any major immediate threat to the oil supply unless it further spreads to other countries in the region which could develop into a more devastating proxy war, embroiling the US and Iran.
As the crude oil prices surge, the threat of high inflation grasps the global economy again. The UK is a big importer of oil and can see high imported inflation if the oil prices remain elevated. When oil prices rise, the cost of production and energy costs for businesses and households also surge, driving inflation higher. High energy prices and new inflationary trends could undermine the efforts of The Bank of England to bring inflation under control. This could mean that we should expect interest rates at an elevated level for a prolonged
There is a similar trend seen from the conflicts between Russia and Ukraine where global construction operations have been completely disrupted. One of the biggest reasons for this is the increased cost to carry out operations. Rising fuel prices — in the case, particularly diesel — means that it costs significantly more to operate trucks, cranes, and other heavy equipment. Some of these costs may be offset through more efficient use of equipment, but only to a certain degree. Moreover, fuel prices also put pressure on the cost of critical materials such as steel, nickel, chemical products, and timber which are all require very intensive energy input.
Additionally, supply chains already reeling from a global pandemic have become further disrupted by the conflict with Ukraine, driving up costs, causing materials shortages and lengthening project timelines, sometimes significantly. Transportation lanes and international cooperation may be affected, causing further supply chain ripples. It will be interesting see what other impacts these conflicts have on the wider economy and how the government and the industry reacts to it.
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