Strategic Implications of a Potential Israel–Iran War on International Trade and the Global Economy

Operation Rising Lion—a massive Israeli airstrike on Iran’s nuclear and military facilities in the early hours of June 13, 2025—marks a dramatic escalation in Middle East conflict. The attack, involving over 200 aircraft and resulting in the deaths of senior Iranian commanders, shattered existing diplomatic efforts—including ongoing U.S.–Iran nuclear negotiations initiated in April—heightening the risk of a broader regional war.

Immediate macroeconomic repercussions include:

• Oil prices surged 7–13%, triggering the largest single-day spike since March 2022.

• Global financial markets saw flight-to-safety moves: U.S. futures slid (~600 points), gold advanced (~1%), and the dollar strengthened.

• Shipping route fears heightened around the Strait of Hormuz and Red Sea, as Iran threatened maritime disruption.

These developments immediately disrupt energy markets, trade logistics, and investor confidence. We are outlining most likely outcomes of a prolonged conflict across short-, medium-, and long-term time horizons with an emphasis on impacts to the U.S. construction sector and provides strategic recommendations for our clients.

1. Background

Tensions culminated on June 13, 2025, when Israel launched Operation Rising Lion, targeting Iran’s nuclear facilities at Natanz and other military sites, eliminating top IRGC leadership. This action undermines current U.S.–Iran nuclear negotiations, which had seen meaningful progress since April in Oman, Rome, and Muscat. Iran has responded with drone deployments and threats against both Israeli and U.S. bases, raising the prospect of regional escalation.

2. Short-Term Impacts (0–6 Months)

2.1 Energy Price Shock

• Oil prices jumped 7–13% intraday—Amid fears of broader conflict, Brent crude posted its most significant one-day increase since early 2022.

• Disruptions to waterways like the Strait of Hormuz amplified volatility.

2.2 Financial Market Volatility

• U.S. stock futures dropped (~600 points), indicating risk-off sentiment.

• Gold rose ~1%, and the dollar strengthened as investors fled to safe havens.

2.3 Shipping & Logistics

• Analysts warn of threats to critical maritime chokepoints—a repeat of the Red Sea disruption scenario—with potential insurance spikes.

• Airlines suspended flights over the region; carriers including Lufthansa, Air France, KLM, and EasyJet saw 3–5% stock dips.

2.4 Construction Sector Impacts

• Rising oil prices directly increase asphalt and diesel costs, pressuring construction operating margins. Place further upward pressure on spot shipping prices.

• Shipping bottlenecks and rising maritime insurance further elevate costs for imported materials, including steel, glass, and engineered wood.

• Immediate pricing pressure on globally sourced equipment and fixtures.  Raw materials like steel and aluminum nudge north.

3. Medium-Term Impacts (6 Months–2 Years)

3.1 Monetary & Fiscal Stance

• Inflationary pressure from sustained energy costs will discourage central banks (Fed, ECB) from lowering rates.

• Higher interest rates will raise borrowing costs for real estate developers, reduce capital availability, and delay commercial and infrastructure projects.

• Governments may redirect fiscal budgets toward defense, delaying infrastructure and housing investments.

3.2 Trade & Currency Effects

• A stronger dollar will elevate U.S. import costs and curb export competitiveness.

• U.S.–Israel trade (~$35 bn in 2023) and other high-tech supply chains may suffer logistics constraints.

• Major partners (Germany, Japan, India) face inflation and growth slowdowns due to elevated energy and shipping costs.

3.3 Construction Sector Outlook

• Higher interest rates and input costs reduce housing affordability and delay multifamily and industrial construction.

• Importers of rebar, aluminum, and construction hardware face extended lead times and cost volatility.

• Smaller firms may face liquidity constraints and bid less competitively.

4. Long-Term Impacts (2+ Years)

4.1 Supply-Chain Realignment

• Firms will diversify from high-risk maritime routes, accelerating reshoring and nearshoring, particularly in semiconductors and defense sectors.

• Construction materials sourcing for US based clients will stay in Asia, although for European clients may shift to North American and Latin American partners, though with higher baseline costs.

4.2 Geoeconomic Decoupling

• Ongoing conflict may solidify bloc-based alliances, raising barriers to global trade efficiency by an estimated 10–15%.

4.3 Innovation & Trade Headwinds

• Reduced capital mobility and technology exchange could hamper productivity and long-term growth except in defense sectors and their secondary and tertiary inputs.

• Persistently high energy and agricultural prices threaten global food and energy security for developing nations.

4.4 Structural Construction Trends

• Rising costs may accelerate modular building and prefabrication to counter labor and material inflation.

• Real estate financing may permanently reset to higher rate expectations, altering investment models.

5. Strategic Recommendations

Short-Term

• Explore energy hedges.

• Enhance maritime logistics oversight and alternative freight planning.

• Prepare financial hedging strategies for commodities and FX volatility.

• Engage construction associations and suppliers to assess contract re-pricing risk.

Medium-Term

• Diversify supply chains and build infrastructure to bypass critical chokepoints (Europe and Middle East specific).

• Expand credit access for small and mid-sized builders facing margin compression.

Long-Term

• Continuously monitor geopolitical bloc realignments to align procurement policy.

• Source new building technologies and materials to offset inflationary pressures.

  June 13’s Operation Rising Lion signals a potential watershed moment in global geopolitics, with direct consequences for energy markets, financial stability, trade logistics, and geopolitical alliances. The interwoven disruption across short- to long-term timelines will deeply affect capital-intensive sectors like U.S. construction. Industry leaders and policymakers must act swiftly to reinforce resilience, stabilize cost bases, and adapt long-term planning frameworks to the new economic reality.