Construction costs will soar in early 2026 due to rising energy prices, and analysts warn that fluctuations in oil prices due to tensions in the Middle East could push costs further higher.
Construction costs are rising rapidly, and the latest data suggests further changes are likely to come. Prices for key construction materials soared at a “staggering” annual rate of 12.6% in the first two months of 2026, according to analysis published by Associated Builders and Contractors (ABC).
Part of this increase was due to energy costs. Input prices for non-residential construction increased by 1.3% month-on-month in February and by 3.7% compared to the same period last year. However, these numbers may be an underestimate of what’s to come.
The report does not yet take into account recent economic changes, such as fluctuations in oil prices due to escalating tensions in the Middle East, factors that could further increase construction costs in the coming months.
“Notably, this data does not reflect the sharp rise in oil prices (nearly $100 a barrel as of this morning) due to the Iran conflict,” ABC chief economist Anirban Basu said in a statement. “This will put upward pressure on construction material prices, both directly through higher diesel prices and indirectly through higher transport costs for other raw materials.”
The month-on-month increase was primarily due to higher energy costs, with prices rising across major categories such as natural gas, unprocessed energy materials, and crude oil.
Even before the recent escalation of geopolitical tensions, energy costs were already on the rise. Natural gas prices rose 10.9% month-on-month in February, unprocessed energy feedstocks rose 6%, and crude oil prices rose 4.7%. Other key construction materials also recorded increases, indicating widespread cost increases across sectors.
Rising costs are already starting to impact project decisions, with developers and contractors beginning to factor in rising input prices when evaluating new projects, according to an analysis by the Associated General Contractors of America.
“There is a limit to the amount of price increases that the market can absorb before owners put projects on hold,” Jeffrey D. Shoaf, CEO of Associated General Contractors of America, said in a statement. “Reducing uncertainty around tariffs and stabilizing supply chains will go a long way in helping contractors keep projects moving forward.”
February’s rise in nonresidential construction input prices followed a jump in January due to higher costs due to tariffs on materials such as wire, cable, industrial control equipment, and copper and steel.
At the time, the ABC said the increases were “not particularly concerning”, noting that most of that year’s price increases had already occurred in early 2025.
However, price pressures are beginning to rise again across the construction industry. The annual growth rate of overall construction input, including residential and non-residential, rose to 3.1% year-on-year from 2.3% in January.
Analysts say that while the recent rise alone may not cause alarm, the cumulative effect of rising costs is starting to raise concerns.
“According to the ABC Construction Confidence Index, fewer than one in four contractors expect their profit margins to shrink over the next six months,” Mr Bass said. “If input prices continue to rise rapidly, these expectations will need to be viewed with great caution.”
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