“Attacks on critical infrastructure are not only about what is destroyed, but also about people being deprived of what they need to live. Even wars have limits.”
The Iran war has sent shockwaves through the global economy, sharply increasing energy prices and helping materials costs rise 2.2% more in March, month-on-month, and 4.8% more than a year earlier. A survey of 73 economists published April 16 in The Wall Street Journal warns that protracted conflict in the Middle East will spur higher inflation, slower growth in the short term and weaken job creation. As diplomacy broke down, the poll raised the chance of an economic recession in the next 12 months from 27% to 33%. This is a worryingly high percentage. Moreover, these same economists forecast a tepid 2% growth in gross domestic product. Fortunately, economists’ forecasts are often wrong. Compounding the complications, in a good way, Wall Street’s performance remains incredibly strong.
Treasury Secretary Scott Bessent says he’s optimistic gas prices for consumers will return to $3 a gallon by summer. Of course, this assumes that many things will go well in the coming weeks and months. We hope it does, but that’s optimistic at best.
Although the dual Iran-US blockade of the Strait of Hormuz was lifted as of the April 21 issuance deadline, its impact remains, having reduced key shipments of fertilizer, industrial chemicals, metals and oil to a fraction of their pre-war pace. Few economists or private sector companies believe that there will not be stubborn energy price inflation as a result. Risk now dictates that a more conservative approach to business as a hedge against more protracted conflict portends long-term friction for the global economy. Global consumers will naturally respond by reducing spending. All in all, it’s obvious that the risk dial for construction costs will reset higher.
Three weeks after global consultant Rystad Energy estimated a tab of $25 billion to repair and rebuild war-damaged Persian Gulf energy infrastructure, including Iran, the company has now revised the figure to a range of $34 billion to $58 billion, which includes up to $8 billion for damaged industrial, power and water production assets. “Repair work does not create new capacity; it redirects existing capacity, and this redirection will be felt in project delays and inflation far beyond the Middle East,” Rystad’s analysis said.
ENR sees the world through the eyes of industry professionals who create infrastructure, so it is especially distressing to witness the damage and destruction. Targeting energy facilities, desalination plants and other civilian infrastructure, with only a marginal military purpose, represents a brutal level of war tactics.
The International Committee of the Red Cross posted on Facebook on April 7 an illustration of a child in a bombed-out street with a bucket in front of a broken water spout. The previous message stated that “critical infrastructure should never be a casualty.” He added this: “Attacks on critical infrastructure are not only about what is destroyed, but also about people being deprived of what they need to live. Even wars have limits. They must be respected.”
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