Rising Oil Prices Cast Uncertainty Over NYC's Booming Building Pipeline

Contractors are worried that cost increases linked to the war in Iran could push prices up for the wave of planned developments in New York City. 

Oil prices are already making construction materials more expensive, with materials costs growing 2.2% in March alone, according to an Associated Builders and Contractors report. Brent crude oil futures traded above $105 a barrel on Friday as the U.S. and Iran have attacked vessels traversing the Strait of Hormuz this week. On New Year's Eve, oil was $69 a barrel.

Now, a year after tariffs rattled the construction industry, builders and analysts are concerned that uncertainty exacerbated by the war will hurt NYC’s nascent construction boom.

“It takes a lot of confidence to move forward with the construction project right now, given geopolitics and just policy uncertainty,” ABC Chief Economist Anirban Basu said. “There's not a lot of confidence.”

NYC is on the precipice of a new wave of construction. Developers filed plans for 19.1M SF of new construction in Q4 2025, a 201% jump year-over-year and 50% above the historical average, according to Real Estate Board of New York data. Residential filings also increased by 19%, with developers proposing almost 14,000 units during that quarter.

The first two major ground-up office developments since the pandemic also kicked off last year, with Related Cos. and BXP breaking ground on more than 2M SF of office last summer between 70 Hudson Yards and 343 Madison Ave.

RXR and TF Cornerstone plan to break ground on Midtown's tallest building, the $6.5B 175 Park Ave., in June. Additionally, the city has multiple multibillion-dollar infrastructure projects underway, including the Gateway Tunnel, the Second Avenue Subway expansion and John F. Kennedy Airport’s renovations. 

But oil prices are already adding extra costs that could blow projects past their budgets, ABC warned.

Contractors say the costs associated with shipping and trucking goods to jobsites haven’t hit their bottom lines yet, but they are bracing for when it does. Increased oil prices will make any materials that contain plastics, such as carpet, as well as crucial components made from steel, aluminum and copper, more expensive.

“It feels like tariffs have been replaced by oil prices,” said Elizabeth Velez, president of construction firm The Velez Organization. “I don't think the other shoe has dropped in how that's going to impact some of the materials that we use.” 

Price increases are unlikely to impact the start of projects like 2 World Trade Center, the nearly 2M SF office tower Silverstein Properties is planning to start work on later this spring for American Express' new headquarters, Associated General Contractors Chief Economist Ken Simonson said. 

But outside of the biggest office developments from institutional players and driven by well-capitalized tenants, uncertainty over materials pricing will likely affect how willing construction firms are to take on work, Simonson said.

Affordable housing could wind up being one of the biggest casualties of the conflict with Iran, Associated General Contractors of New York State CEO and President Mike Elmendorf said.

Both 467-m and 485-x, New York’s office-to-residential conversion incentive and its mixed-income multifamily development incentive, are intended to produce affordable housing as well as market-rate apartments.

Midsized projects in the boroughs — where developers have proposed 97% of 485-x developments, all of which are 99 units or less, according to REBNY data — are likely going to be cost-sensitive, Basu said. 

“They can only raise their rent so much, and they're probably having to borrow at relatively high interest rates to finance construction,” he said.

Starts for office-to-residential conversions doubled to hit 5M SF in 2025 as developers figured out how to use 467-m and are expected to almost double again to 9.8M SF this year, according to a February Cushman & Wakefield report. But that pipeline will likely also shrink, Basu said. 

“Commercial conversion to residential is extremely expensive,” he said. “When material prices rise for steel, aluminum, copper — which is now over $6 a pound — labor and other inputs, then, of course, that's going to render some fraction of projects nonviable.”

Contractors like JT Magen are already playing defense, said the firm's principal, Bobby Scheinman. The construction company is building contingencies into its contracts to protect itself from instances where it would be forced to swallow unforeseen costs, like it did at times during the pandemic.

“There are some clients that are very reasonable, and there are some clients that are not as reasonable,” Scheinman said. “What we're trying to do right now is we're trying to forecast for any project that we're going after.”

Other companies are cutting back on the types of work they’re willing to take on. Talisen Construction Corp., which specializes in interior fit-outs for education, healthcare and corporate office spaces, is now mostly working with repeat clients, CEO and principal Joseph Rigazio said.

“We are not able to pass the cost on to our clients like we could in the past,” he said. “We don't want to build our backlog with low-margin, high-risk business.”

Contractors are also worried that delays getting materials to construction sites will cause projects to drag on for longer, creating an additional cost. Velez has one project that has already been delayed since shortly after tariffs were first introduced — a trend she expects will continue.

JT Magen is still fielding a steady stream of requests for proposals for all of NYC’s planned construction coming through every day, Scheinman said. But he’s worried about what future demand could look like, given the prolonged geopolitical uncertainty, increased costs of fuel and higher materials prices.

“I’m concerned that if prices go up and developers are not building buildings, that there will be less projects,” he said. “That doesn’t help anyone in construction, subcontractors or suppliers.”