Impact of Middle East tensions on UK construction and engineering projects

Recent instability in the Middle East is driving volatility in global energy markets and international supply chains. In this briefing, we explain what impact this can have in practical terms for construction and engineering projects, from rising costs to supply chain delays, and outline steps parties can take now to protect their projects and/or wider construction activities.

What is happening?

Rising energy and materials costs

With oil prices subject to significant rises, the knock-on impact of increased energy costs on the manufacturing and transportation of construction materials is likely to be felt across the sector. Materials such as steel, aluminium, plastics and MEP components are particularly exposed, alongside energy-intensive products such as cement.

Contractors on fixed price contracts may feel the squeeze and could seek to renegotiate aspects of their contracts where circumstances allow, or look at different pricing models for future contracts.  Employers will also see cost impacts under reimbursable contracts and in tender prices for upcoming projects. An increase in claims for loss and expense or compensation events may arise, although entitlement will depend entirely on the contractual allocation of risk. The conflict itself does not automatically provide a legal claim for extensions of time or increased cost, and it will depend on the contract terms.

Supply chain disruption

Disruption to shipping routes through the Strait of Hormuz is affecting global imports, with extended lead times for materials and components. This disruption is likely to cascade through the supply chain, and we have seen projects impacted directly in previous periods of global instability.

Contractors may seek to rely on contractual relief mechanisms, for example compensation events under NEC or relevant events under JCT, relying on force majeure or other contractual triggers. These provisions typically apply where performance is prevented or materially delayed by events outside the parties’ control, rather than simply becoming more expensive or commercially inconvenient, although the position is obviously always contract-specific.

Depending on the drafting of the contract, contractors may be entitled to extensions of time and/or additional payment where delays arise from certain causes such as government action, war or hostilities or embargoes and sanctions. Change in law provisions may also be relevant where new sanctions, export controls or trade restrictions impact on the project.  These clauses sometimes contain strict notice requirements, and failure to follow the correct processes or time limits may defeat a claim entirely. 

Financing and investment uncertainty

Lenders may adopt a more cautious approach, slowing funding decisions and increasing scrutiny. UK economic commentary now suggests that the conflict could push UK inflation back towards 3% by the end of 2026 if energy prices remain elevated, compared with earlier forecasts closer to 2%. The extent to which this will affect longstop dates or require schemes to be re-scoped is not yet clear, but parties should expect greater sensitivity around project viability and risk allocation.   

Insurance considerations

Premiums for political risk, delay in start-up (DSU)  insurance and supply chain cover may rise as insurers reassess geopolitical risk.   

Key actions

Parties may want to revisit the detail of their live contracts now, so they fully understand the above issues and are ready to respond quickly and confidently when these conversations or issues arise, while also maintaining detailed and accurate records of any factors or costs that could affect contractual risks or prices.

It is also sensible to consider whether future contracts should strengthen certain provisions, for example force majeure wording, price adjustment mechanisms, supply‑chain transparency obligations, early warning requirements or programme reporting.

Employers in particular should build realistic contingencies into future budgets. Where cost‑related, force majeure or other time or money‑related claims are made or received, evidence should be provided in accordance with the contract, and contractual time limits observed. Notice requirements, mitigation duties and early warning obligations should be clearly understood and consistently applied. Strong project records will be vital both to substantiate claims and to defend against them.

Parties should engage early with funders on new projects and familiarise themselves with any funding‑related provisions, including lender covenants relating to war‑risk, delay, business interruption and insurance. Insurance policies and schedules should be reviewed for potential gaps, insurers notified promptly of any potential claims, and contractors’ compliance with insurance obligations confirmed.

Takeaway

Middle East tensions are likely to increase cost, procurement, and programme risk across UK construction at a time when the industry is already subject to a number of pressures. Parties should expect more claims and greater pressure on fixed‑price arrangements. Proactive contract management and careful drafting of new contracts will be essential to protect commercial outcomes.

If you require any advice on current or future contracts, Burges Salmon’s specialist Construction and Engineering team is highly experienced in helping clients across the sector.  Please do get in touch if you have any queries on this or any other topics.

This article has been written by James Horton and Sarah Steed.