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Gulf contractors face post-war materials squeeze

28 April 2026

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Despite the tenuous ceasefire and efforts toward a political resolution, the Gulf’s construction materials supply chain is absorbing impacts that will not be quickly mitigated and are likely to be felt for many months.

Insurance premiums can normalise within weeks on restored confidence; commodity prices, port backlogs and depleted diesel inventories will not.

The GCC has $943bn in projects currently under execution, according to MEED Projects – more than half of it awarded in the past two years. That book now faces cost pressures that fixed-price contracts were not written to absorb.

A further $321bn sits at the bidding stage, where submitted prices face scrutiny against a drastically altered set of input costs.

Steel price divergence

GCC crude steel output reached a record 21.64 million tonnes in 2025 – up 9.5% year-on-year – with Saudi Arabia alone producing 10.78 million tonnes, a 12.3% increase, according to the Arab Iron and Steel Union.

The conflict has halted that trajectory as Gulf steelmakers have seen their seaborne supply of iron ore pellets to feed their direct-reduced iron (DRI) plants cut off. This has forced a fallback to ferrous scrap and in turn created a secondary squeeze.

Saudi Arabia’s four electric arc furnace steelmakers typically rely on DRI for 80-85% of their raw material, so a turn to scrap at scale would rapidly exhaust domestic supply.

Saudi steel prices have swiftly risen as a result. Fastmarkets’ weekly assessment for rebar delivered into Saudi Arabia stood at SR2,300-2,460 ($612-655) per tonne on 7 April, up roughly 9% on the midpoint from the pre-conflict level of 23 February.

The price rally has extended through April, with Saudi Iron & Steel Company (Hadeed) raising long-product prices for the fourth time since early April – the latest a SR160 increase to SR2,800 per tonne for 12-32mm rebar.

Pricing is nevertheless diverging across the region. Emirates Steel held its May rebar price unchanged at AED2,721 ($741) per tonne ex-works, citing market stability as the priority despite rising cost pressures from the regional disruption.

The rollover discipline outside Saudi Arabia may partly reflect other Gulf countries’ political and industrial leadership exerting pressure to maintain market confidence during an abnormal period, rather than an accurate read of underlying cost pressures.

Invariably, the DRI feedstock squeeze, elevated freight and higher energy input costs sit on every mill in the region, not just Saudi Arabia’s.

When a geographical market as large as the kingdom exhausts both primary input supply and scrap, it is bound to affect the entire region-wide sector sooner or later.

Held list prices can mask cost accumulation for a while, but delayed passthrough will not change the underlying fundamentals.

Aluminium constraints

In addition to the impacts on the steel sector, the physical damage to Gulf aluminium production was one of the largest shocks to the GCC’s industrial base during the hot period of the Iran conflict.

It will take up to 12 months for Emirates Global Aluminium (EGA) to repair the damage sustained by its Al-Taweelah complex in Abu Dhabi on 28 March. Aluminium Bahrain (Alba) was also hit the same day, and both producers have declared force majeure.

GCC daily aluminium production was down roughly 6% month-on-month in March, according to the International Aluminium Institute – despite that period incorporating only three days of disruption following the 28 March strikes. April will be worse.

The region’s total Q1 aluminium output declined to its lowest point in four years.

London-based commodities firm CRU Group now estimates curtailment at Al-Taweelah alone could remove up to 1.2 million tonnes from 2026 production, while JP Morgan has projected a 1.9 million tonne global deficit for 2026 – the largest since 2000.

Prices have moved accordingly. The aluminium three-month benchmark at the London Metal Exchange (LME) climbed from around $3,100 per tonne at end-February to a peak of $3,670 on 16 April – a three-year high – before easing to around $3,540 with the ceasefire. CRU has modelled a path to $4,000 per tonne under prolonged disruption, while BMI, the research arm of Fitch Group, has given a $3,700 price target.

For regional contractors, this premium could begin to hit hard. Gulf producers have historically supplied GCC construction at a discount to imported metal, reflecting low-cost gas feedstock, proximity and short logistics chains.

With production curtailed at Taweelah, Alba and Qatalum – and Hormuz shipping constrained – that discount has collapsed. Contractors now face LME-plus-import-premium pricing from further afield for the bulk of their aluminium requirement through 2026 – on tenders that were quoted on the Gulf-premium assumption.

Freight, fuel and other inputs

Imported inputs into GCC construction range from specialist steel and electromechanical components to cladding systems and project equipment.

Lloyd’s List Intelligence recorded around 80 vessel transits through the Strait of Hormuz in the week of 13-19 April, against pre-war traffic of 130 or more transits per day.

Kpler has forecast a ceiling of 10-15 daily passages even if the ceasefire holds, leaving project supplies caught up in the disruption. Construction-bound freight will likely not be a priority when transit resumes, however, and premium pricing will still apply.

The UAE east-coast ports are absorbing part of the diverted flow, but Khor Fakkan can only partially compensate, with throughput capped at around 3,000 TEU; Jeddah, the primary contingency hub, has dwell times of 10-12 days.

Imported construction supply chain inputs are already showing the squeeze: for instance, a flow of around 40,000 tonnes of copper cathode bound each month for GCC wire rod producers has been halted, according to Fastmarkets.

Then there is the matter of fuel. Diesel is a direct contractor operating cost, running through site generators, plant, trucking and logistics.

The latter is particularly key. For low-value, high-weight inputs such as cement and aggregate, rising diesel pricing compounds through the supply chain.

Diesel in the UAE tracks international benchmarks monthly and rose to AED4.69 per litre in April, up 72% month-on-month, with Brent having moved from around $65 pre-conflict to a $103 March average. Saudi diesel also follows wholesale references.

Cement as an outlier

Cement is the one base construction input where the conflict has not yet produced a clear contractor-facing cost pressure.

In Saudi Arabia, domestic dispatches fell 5.6% year-on-year in March, reflecting the Ramadan timing and a broader construction-sector softening. Total March sales were down 6.7% year-on-year and 21.3% month-on-month, according to Al-Rajhi Capital.

Saudi cement is largely domestically produced; the sector is not raw-material-constrained. Utilisation rates at Saudi plants dropped in March to 67.4% against a 73-74% sector run rate through most of 2025. Prices have not moved, according to Saudi Arabia’s General Authority for Statistics.

If construction demand increases and energy costs settle at a higher regional baseline, cement producers will reprice – but the trigger will be recovery, not conflict.

Repricing expectations

The space to watch is the $321bn of GCC work at the bidding stage, where pricing structures based on pre-28 February assumptions now face a different cost reality.

Some bids could be repriced, some withdrawn; others will be awarded at margins that no longer cover the input environment that awarded contracts are already absorbing.

As in previous periods of market stress, many Middle East-based contractors will likely accept low or negative margin work if only to maintain their operational cashflow. For contractors already in distress, the margin adjustments could prove tricky to absorb.

In the book already under execution, the gap between committed pricing and current input costs could surface in the coming period as contract renegotiations and programme slippage.

Steel and aluminium will lead. Diesel will run through every line. War risk insurance will ease faster than any of these on confidence restoration – assuming that the political picture stabilises – but that may become the least of contractors’ worries.

Nor is a near-term resolution even remotely guaranteed. The US’ 13 April naval blockade has only compounded Iran’s closure of the Strait of Hormuz, and every day that logistics in the waterway remains stagnant is another day of pressure on supply chains.

The materials squeeze is not two months old and contained; it is compounding.

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John Bambridge

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