Soaring energy costs and new tariffs linked to the war in Iran are straining an already fragile commercial real estate construction market, still recovering from years of inflation and pandemic-related disruptions. What began as a geopolitical crisis has rippled through supply chains, driving up costs for everything from diesel to aluminum and leaving developers and contractors struggling to make new projects pencil out.
West Texas Intermediate and Brent crude remain near $100 a barrel, sending transportation costs higher as diesel prices reached $5.643 per gallon on April 6, 2026, up from $3.639 a year earlier—a 55.1% year-over-year increase, according to the U.S. Energy Information Administration. Natural gas, a key fuel for electricity generation, has also climbed, raising energy bills across the commercial sector.
In January 2026, U.S. commercial electricity averaged 13.64 cents per kilowatt-hour, up 6.4% from 12.82 cents the previous year. That figure excludes transmission costs, which have risen even faster in many regions as utilities expand capacity to serve power-hungry data centers. The Union of Concerned Scientists has noted that utilities are allowed to recover these costs through ratepayer bills.
Energy price hikes ripple through every stage of construction. Petroleum products underpin essential materials such as plastic pipes and asphalt, while the conflict has disrupted aluminum imports—roughly one-fifth of which come from Gulf nations, according to The Wall Street Journal. Those supply constraints coincide with higher tariffs that further drive up costs.
The administration's latest tariff adjustments, announced in April 2026, impose a 50% tariff on goods wholly or largely made of aluminum, steel or copper and a 25% tariff on items such as washing machines that contain significant amounts of these metals.
Ken Simonson, chief economist for the Associated General Contractors of America, told The Wall Street Journal that many firms have been absorbing higher costs for now but warned that the situation is unsustainable.
"Looking forward, we're going to see even more caution on the part of owners about going ahead with projects," he said to the Journal.
These new pressures compound years of cost escalation. From February 2020 to February 2026, final demand for private construction rose 44.5%, according to GlobeSt.com calculations based on Bureau of Labor Statistics Producer Price Index data. Inflation during that period totaled 26%, underscoring the outsized financial strain on commercial projects. With construction prices unlikely to ease, developers face tighter margins, delayed starts and higher replacement costs that complicate insurance and long-term planning.
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