- Oil prices jumped over 12% in a week following US-Iran conflict escalation.
- Developers and the Fed are pausing plans as commercial construction faces new uncertainty.
- Rising oil costs could delay or halt projects, especially those with tight margins.
- Higher energy costs may contribute to inflation and extended rate uncertainty.
Oil Price Shock Stirs CRE Uncertainty
Bisnow reports that escalating military conflict between the US and Iran triggered the largest oil price spike in decades. Last week, West Texas Intermediate jumped 12%, while Brent crude rose 8.5%. As a result, oil prices climbed past $100 per barrel for the first time in four years. The sudden surge is raising new concerns among developers and across the broader economy.
Developers that were recovering from previous volatility now face renewed risk, as sustained high oil prices threaten construction timelines and financing costs. The Strait of Hormuz closure, if prolonged, could send oil to $150 per barrel, adding greater pressure.
Developers Hit Pause on Construction
As oil prices climb, developers are increasingly cautious. Rising fuel costs inflate all phases of commercial construction, from materials transport to equipment operation. Commercial construction material costs had already surged 40.5% from early 2020 to 2025, and the new conflict is amplifying cost risk.
Privately financed projects are especially vulnerable. Projects with thin margins may be shelved, leading to reports of delays, and some contractors are reassessing reserved capacities.
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Interest Rate Policy in Limbo
Higher oil prices are pushing up inflation, complicating Federal Reserve policy. Economists expect the Fed to maintain a wait-and-see stance as officials assess whether the price surge is temporary or structural. The uncertainty mirrors broader concerns across financial markets, where energy shocks are already clouding expectations around future rate cuts. Extended instability could delay rate cuts and financing clarity for developers.
Long-Term Outlook Remains Uncertain
The conflict’s broader impact may linger. Insurance premiums are expected to rise, adding costs to future projects, and developers remain wary of delivering new inventory into a weak market. Confidence across the industry is shaken as both global energy and commercial construction face an uncertain path forward due to spiking oil prices.
