News
Middle East Escalation Pushes Oil Higher, Raising Fresh Construction Cost Risk for Pakistan
By Mariam Khan
Real Estate Analyst
7 min read
International oil prices moved sharply higher after Saudi Arabia temporarily shut down its 1,200 kilometre East-West oil pipeline following a drone attack, with Brent crude breaking above $109 per barrel, a genuinely significant escalation in the ongoing US-Iran conflict that has already been driving sustained volatility in global energy markets throughout the year.
Why the Pipeline Attack Specifically Matters
The East-West pipeline has capacity to move up to 7 million barrels per day and had been carrying an estimated 4 to 5 million barrels daily in recent months, equivalent to roughly 4 to 5 percent of total global oil supply, running across the Arabian Peninsula to export terminals at Yanbu on the Red Sea. Saudi Arabia had specifically relied on this pipeline to bypass the severe shipping logjam already affecting the Strait of Hormuz amid the broader US-Iran conflict, meaning this attack removed one of the few remaining reliable export routes still functioning at scale. Saudi and Iraqi officials said the drone attack originated from Iraq, where Iranian-backed militias operate, and satellite images showed smoke rising from the pipeline's route south of Medina. With no ready alternative able to redirect the same volume of crude to Yanbu once the pipeline was shut, oil prices closed the week more than 8 percent higher.
A Second Chokepoint Is Now Also Under Direct Threat
Compounding the pipeline shutdown, Houthi forces separately seized the strategic island of Perim at the mouth of the Bab el-Mandeb Strait, the narrow passage connecting the southern Red Sea to global shipping markets, opening a second major pressure point on Gulf energy exports alongside the already disrupted Strait of Hormuz. The International Energy Agency has said Saudi crude supply has fallen to its lowest level in more than three decades, attributing part of that decline specifically to Houthi-linked attacks on shipping transiting this strait. Saudi Arabia has requested military assistance from the United States in response to the Houthi threat, though Washington has so far offered only intelligence sharing and targeting support rather than direct intervention.
This Sits Within a Months Long, Highly Volatile Conflict, Not a Sudden New Shock
Understanding this latest spike requires understanding the fuller timeline it sits within. This same US-Iran conflict has been running since around February 2026, and has already produced dramatic price swings well beyond earlier levels. At the conflict's most extreme point in March, Brent briefly spiked to around 140 dollars per barrel, the highest level since 2008, after commercial shipping through the Strait of Hormuz was effectively halted. Prices later eased considerably following a ceasefire memorandum of understanding between the US and Iran in June, with Brent falling as low as 69 dollars per barrel by early July. Renewed attacks on tankers transiting the Strait later that same month pushed prices back up sharply, reaching as high as 105 dollars per barrel by late July, before easing again and now climbing once more through August and September. This week's roughly 97 dollar level sits within that same established pattern of volatility rather than representing an entirely new development.
Why the Strait of Hormuz Remains the Central Risk
The Strait of Hormuz carries roughly a third of the world's total seaborne oil trade, making it the single most consequential chokepoint for global energy markets, and the recurring target of disruption throughout this conflict. Iran has not formally closed the strait at any point during the conflict, and US officials have stated Middle Eastern oil flows have returned close to normal levels in recent weeks even as tanker tracking data has continued to show significant disruption. This gap between official statements and independently tracked shipping data is itself a useful signal of how genuinely uncertain the supply picture remains.
Why Pakistan Specifically Carries Real Exposure
Pakistan relies heavily on imported crude oil and petroleum products to meet domestic demand, meaning sustained increases in international prices translate directly into a higher national import bill and corresponding pressure on domestic fuel prices. This exposure is no longer theoretical: domestic diesel prices have already crossed Rs400 per litre under Pakistan's daily pricing mechanism even before this latest pipeline driven price spike is fully reflected in international benchmarks, meaning further upward pressure on Pakistan's own pump prices is a genuine, immediate risk rather than a distant possibility. This exposure is structural rather than incidental, Pakistan's own energy security planning, including the government's ongoing work on strategic petroleum reserves and new bonded storage arrangements for foreign suppliers, has been explicitly designed around this same vulnerability to exactly this kind of Middle East supply disruption.
How This Feeds Into Domestic Construction Costs Specifically
Elevated international oil prices affect construction costs through several distinct channels simultaneously. Higher fuel prices directly raise the cost of transporting both raw construction materials and finished cement, steel, and other building products across the country. They also raise the operating cost of heavy construction machinery and equipment running on diesel at active building sites. Beyond these direct effects, sustained oil price pressure tends to feed into broader domestic inflation, which can in turn complicate the path toward further monetary policy easing, with knock on implications for development and mortgage financing costs more broadly.
What Analysts Are Currently Watching
Market analysts have offered a range of views on where prices head next. Citi has raised its third quarter Brent forecast to 86 dollars per barrel, up from an earlier 80 dollar estimate, citing expectations that a full reopening of the Strait of Hormuz will take longer than previously anticipated, while other analysts have lifted short term Brent forecasts toward 95 dollars per barrel. Separately, Iraq has increased its own oil exports substantially, raising August exports to around 2.34 million barrels per day, up from roughly 1.35 million barrels per day in July, a supply response that could help offset some of the disruption risk if sustained.
What Remains Genuinely Uncertain
Whether current prices represent a peak, a plateau, or the early stage of a further escalation depends entirely on how the underlying conflict develops, including whether the East-West pipeline can be repaired and safely restarted, and whether the Bab el-Mandeb Strait threat from the Perim Island seizure intensifies further. Saudi Arabia has said it will refrain from retaliating against Iraq for now, giving Baghdad time to prevent further attacks originating from its territory, though this restraint could shift quickly given the stakes involved. Given that prices have already moved dramatically within this same several month conflict, readers should treat any single day's price level as a snapshot within an ongoing, volatile situation rather than a stable new baseline.
What This Means for Construction and Development Costs in Pakistan
If elevated oil prices persist or escalate further, this could meaningfully increase construction material transport costs, heavy machinery operating expenses, and broader development costs across Pakistan's property and construction sector, compounding pressure that has already been building following the country's recent domestic fuel price increases. Developers and contractors currently budgeting projects should build genuine contingency into cost estimates for fuel and transport dependent line items specifically, given how demonstrably volatile this specific input has proven across the current year. Property investors and developers should treat this as one factor among several worth monitoring alongside domestic monetary policy and construction material pricing, rather than a standalone risk, since its ultimate impact on development costs will depend heavily on how long elevated prices are sustained.