Russia – Ukraine War - the winners and losers.

The Russian invasion of Ukraine has raised energy, oil, natural gas and some commodities such minerals / metals and wheat prices to record levels that could seriously weaken the economies for the vast majority of countries around the world, including the larger economies of USA, Western Europe (Germany, UK, France Italy etc,), China, India, Japan and South Korea.

On the other hand, perhaps a dozen or more countries such as Australia, Brazil, Canada, Nigeria, Algeria, Iraq, Mexico, Norway, Venezuela, Saudi Arabia, Iran and some of Middle East the Gulf States (Qatar, Kuwait, UAE) are likely to experience an economic bonanza from their exports of Oil, Gas, Timber products, Wheat, metals such as Platinum, Nickel, Bauxite, Tungsten / Wolfram, Lithium and other minerals.?

The inflation / escalation spikes we have experienced in the last 3 to 6 months presents major risks & challenges to the Global Economy & Construction Sectors:

US construction costs are the highest in over 50 years. Contractors / Owners are really feeling the effects of increased construction costs related to steel, metal siding. copper (cable & piping), roofing, plumbing, drywall, timber products, process piping, valves & electrical components.

The Russian invasion of Ukraine has set alarm bells off, how will this impact the Global Economy & Construction Sectors in 2022, it looks like it will get worse before it gets better.

In a period of just 3 weeks the Global Economic outlook has turned negative while fighting rages in Ukraine, it appears that Russia is intensifying its war effort on Ukraine. How long will this war last, will other countries get involved.

The rapid price increase of Oil & Gas products brought about by the Russian attack on Ukraine will impair the recent global recovery as the full economic effect grows in the coming months.

US inflation escalated to 7.9% in February over the previous year, the largest increase since 1982, 40 years ago. The increase reported by the US Labor Department on March, 3rd 2022 did not include the recent Oil / Natural Gas & Gasoline price surge that followed Russia’s invasion of Ukraine, look for inflation to soar dramatically in March and April.

US oil producers are really challenged, they are unable to ramp up oil production in the short term, look for gasoline prices to increase big time !!!!!!

Three weeks into this crisis and oil is down to $100 a barrel, were will it be in the next three weeks, up or down, nobody knows, stay tuned.

Major Western oil companies have abandoned partnership's, joint ventures and some ongoing CAPEX projects, this action will impact Russian oil production. The US, UK and Canada have stopped imports of Russian oil that could amount to between 10% and 15% of Russia's oil exports.

The bottom line is that construction material costs will increase in the months ahead.

1. Surging Inflation / Escalation on construction costs will translate to increased costs & possible project delays & cancellations. Inflation has become a financial strain for just about all nations around the world, prices are up in just about every category. USA inflation in January surged at quickest rate in 40 years, the Russia / Ukraine crisis will compound this issue. Economists warn inflation / escalation is likely to get worse in the next 3 to 6 months. US construction costs are up by 7% to 9% in the last 12 months, this crisis could intensify this increase, it is likely that construction costs could increase by 10% to 15% in the coming months.
2. The Russia – Ukrainian war will challenge the International Construction sector, with skyrocketing inflation / escalation rates and construction material pricing spikes / shortages.
3. Is $5, $6 or $7 a gallon gasoline on the cards for the US motorist's in the next month or two, looks like it? In the US as the warmer summer month arrive there will be an increased demand for gasoline as families go on vacation. Look for European energy (oil / natural gas / electricity) prices to increase dramatically in the coming months, the recent ban by the USA of imports of Russian Oil & Gas is bound to increase gasoline prices in the USA.
4. Construction related materials such as copper (cable / pipe), structural steel, rebar, piping (PVC, CS & SS), lumber and plywood are rising once again in the last couple of weeks related to the Russian / Ukraine war.
5. Natural gas prices have increased by more than 25% in the last 10 days.
6. Oil has jumped to over $130 a barrel, its highest level in more than 14 years, Oil / Gasoline / Petrol prices could increase by more than 100% or more from pre-crisis level.?Brent crude oil hit close to $140 a barrel over a two days ago, settling back to $123 a barrel.
7. The average cost of a liter of petrol in the UK has risen by more than 25% in the last 10 days, will fuel prices keep escalating, most probably, other European countries have experienced similar increases. Russia is a major supplier of oil to Europe, it seems that European countries are in a tough spot.
8. European economies and its construction sector will face a facing a really challenging period in the months ahead.
9. The Global Economy was just starting to recover from the COVID / OMINCON produced crisis, a strong job market was getting underway, this current Russia / Ukraine crisis will stymie that recovery.
10. Global supply chains struggling to recover from the 2 year COVID pandemic, must be prepared for the continuing problem of shortages and delays of construction materials & associated related capital equipment. Supply chain interruptions and construction material price spikes / shortages are a big challenge forecasted to continue in the 1st half of 2022. Supply chain interruption issues look like they will get worse over the next couple of months.
11. In just two weeks 5 + million Ukrainian's, more than 10% of Ukraine’s 44 million population has fled the country, this number could increase substantially in the next couple of weeks.?Countries bordering or close to Ukraine such as Poland, Moldova, Turkey, Bulgaria, Romania & Slovakia could also face serious economic challenges with 100’s of thousands of refugees fleeing Ukraine.
12. Russia & Ukraine are large exporters of some specialty metals / minerals such as Palladium, Titanium, Manganese & Nickel this most probably will cause shortages & price increases. Ukraine is also a large exporter of wheat (it supplies 20% of the world’s output), this is another issue to deal with.
13. Russia will have to deal with the severe sanctions that could cripple its economy & construction sector.
14. Look for transportation / ocean & domestic freight costs to increase substantially in the near future.
15. COVID / OMICRON is still an ongoing problem in many countries.
16. Consumer goods / food / groceries, show no sign of declining. A key inflation metric, the Consumer Price Index, rose 7.9% from a year ago, unfortunately this crisis will increase this rate.
17. Some Owners, Contractors / Sub-Contractors are paying significant premiums for early delivery of construction materials & process equipment, again increasing construction material and CAPEX costs.
18. A major global recession could increase unemployment rates and could be the event that causes many construction projects to be cancelled or delayed.
19. None of us have experienced an event / crisis like this, unfortunately a full blown war (WW3) between NATO and Russia could develop, let’s hope for the best.
20. Other clouds on the horizon include the USA / NATO getting embroiled with hostilities with Russia, the China / Taiwan problem & North Koreas continuing belligerence.

Estimators / Quantity Surveyors / Cost Engineers & all Construction Professionals need to be aware that we will continue to see increased construction materials prices & material shortages in the 1st Q of 2022 caused by the Russia – Ukraine crisis, inflation, global supply chain issues & the continuing COVID / OMICRON pandemic.

Our (8) 2022 Cost Estimating Databases are now available. You can order your copies on the links below.

We provide Construction Estimating Data for 125 countries, we forecast Engineering, Procurement & Construction cost for 2022, applying latest inflation / escalation values to our historical benchmark database.

The Construction Cost Databases provide current construction materials, labor costs, field in-directs / preliminaries, process equipment, A&E-CM billing rates, Square Foot / M2 Building costs (for 50 + facility types), country productivity values & (2) location factors for complex (high value) & less complex( indigenous) facilities.

Our data is focused on Oil / Gas, Chemical, Pipelines, Offshore, Manufacturing (Consumer Goods, Food / Beverage / Computer Chips), Commercial (offices, hotels, shopping centers and airports), Pharmaceutical / Clean Rooms & Infrastructure Facilities:

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For more information contact John G. McConville CCP - Operations Director - Compass International - USA Telephone +1 (609) 577 4505

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