Can the blockade of the Hormuz Strait stop cranes in Croatia?

Global geopolitical instability, particularly the potential escalation of conflict in the Iran region and the blockade of Hormuz Strait, poses a serious threat to the stability of the construction sector. Since this strait accounts for as much as 20% of the world’s oil and liquefied natural gas (LNG), any disruption directly translates into energy prices, and subsequently into construction costs in Croatia. Saša Perko, a Master of Engineering in Construction, analyzed what a new wave of price increases might look like. He warns that the production of basic construction materials requires enormous amounts of energy, with the firing of clinker for cement or the operation of blast furnaces in steel mills directly dependent on fuel and electricity prices.

“A fifth of the world’s oil and LNG passes through the Hormuz Strait, which means that any disruption directly impacts energy-intensive production processes. Steel prices in Europe have already started to rise in tandem with oil price increases, as energy costs directly affect electric arc furnaces. Cement is even more sensitive — firing clinker consumes huge amounts of fuel, so any spike in energy prices immediately changes the production cost,” emphasizes Perko.

Materials from Asia are quickly becoming more expensive

Although Croatia is relatively protected for basic materials such as bricks and cement because it sources them from Europe, the problem arises with specific equipment that comes from more distant markets. Installation equipment, electrical materials, and connecting elements from Asia are suffering due to shipping uncertainties and higher marine insurance, which directly impacts deadlines and the final price of materials in warehouses. Perko explains that shippers simply incorporate this cost into the invoice, which is ultimately paid by domestic investors and buyers. He notes that in his company, DOMInvest, they proactively plan procurement and stock of these small but irreplaceable goods to avoid delays.

A particular challenge is posed by materials directly related to petroleum derivatives, such as asphalt and waterproofing, whose prices rise rapidly when the price of oil reaches $100 per barrel.

“In such conditions, fixed-price projects quickly become problematic, as contractors with thin margins can quickly incur losses. In residential construction, this translates into rough work through the rising costs of bitumen strips and coatings for foundations, basement walls, and similar elements. Synthetic membranes like PVC and TPO are not directly related to bitumen, but they depend on petrochemicals, so rising energy prices also affect them. I wouldn’t say that project delays are realistic, but price corrections are already occurring,” claims Perko.

Rising energy prices affect interest rates

A war in such an important region usually triggers general inflation, further complicating the situation with interest rates and the availability of financing. Perko explains that war first raises energy prices, and then triggers a broader inflationary wave in which interest rates on housing loans cease to fall and may even rise again. For investors, this means more expensive and harder-to-access capital, which slows down new construction and limits it to projects that can withstand stricter banking conditions. Although real estate is often considered a “safe haven” in crises, he believes that this effect should not be overestimated in Croatia, as prices are still primarily shaped by domestic demand, tourism, and limited supply.

Along with materials, there is also inevitable pressure on labor costs. Rising fuel prices cause a chain reaction of rising food and service prices, forcing construction companies to further raise wages for workers to maintain operability in a sector already suffering from labor shortages.

“Within a construction project, labor costs account for about 35 to 45 percent of the total cost, but it is important to note that wage increases usually come with a lag of six to twelve months. Materials react much faster, often immediately, and sometimes with a dose of speculation from manufacturers and distributors. Therefore, the impact on the price per square meter is first seen through materials, and only later through rising labor costs,” explains Saša Perko.

When asked whether this crisis could accelerate the transition to sustainable and local materials, Perko responds realistically, stating that the crisis can be a trigger but not a reason for a rapid transition. The industry’s priority in times of upheaval is cost stabilization, and sustainable materials typically increase project costs from the outset, so such strategic shifts usually occur only after the market stabilizes. The final assessment of the price increase per square meter in new construction largely depends on the duration of the potential conflict.

“If the situation persists, we could see a scenario similar to the period after the Russian attack on Ukraine, when housing prices in Croatia rose very strongly over a few years — a rough estimate of around 60% over four years,” concludes Saša Perko.