Conflict in the Middle East has pushed up oil and gas prices. Higher energy costs are forecast to raise costs for European building materials such as cement, concrete and bricks.
Producers’ exposure to oil and gas is described as similar to 2022 levels. If energy prices stay high, manufacturers are likely to pass on higher costs to construction firms.
Energy Price Pass Through Risks
This cost pass-through could reduce profit margins in construction. It could also raise overall building costs and dampen construction activity.
From 2010 to 2020, the sector reduced the use of oil for heating by a large amount. There has been no further fall in oil use in the past five years.
Between 2020 and 2025, companies mainly reduced coal use. Gas use has stayed about the same for the last 15 years.
Building permits have risen recently. A longer recovery is linked to more stable energy markets and lower-energy production methods.
Market Positioning And Hedging
The article states it was created with help from an AI tool and reviewed by an editor.
With recent tensions in the Middle East pushing Brent crude back towards $95 a barrel, we are seeing a direct impact on energy-dependent sectors. This situation mirrors the pressures we observed back in 2022, where elevated energy prices were quickly passed on by producers. The European building materials sector, with its significant reliance on natural gas and oil, is particularly exposed to this renewed price shock.
Looking back, we can see that building material companies made little progress in reducing their oil and gas dependency between 2020 and 2025. While coal use was phased out, the reliance on gas has remained steady for over 15 years, leaving these firms vulnerable. The recent performance of the STOXX Europe 600 Construction & Materials index, which has underperformed the broader market by nearly 5% in the last quarter, confirms this vulnerability is now being priced in.
For the coming weeks, we should consider positioning for further downside in this sector as profit margins come under pressure. Buying put options on key players like HeidelbergCement or Saint-Gobain could be a direct strategy to capitalize on expected earnings weakness. This view is supported by Eurostat’s latest data from February 2026, which showed industrial producer prices for construction materials ticking up 1.2%, signaling that cost inflation is already taking hold.
Simultaneously, this provides an opportunity for a pair trade by going long on the energy sector. Elevated oil and gas prices that squeeze manufacturers will likely boost revenues for energy producers. We could look at call options on major European energy companies or futures contracts tied to European natural gas to hedge against, or profit from, the sustained high energy costs.
The glimmer of hope from a slight uptick in building permits we noted in late 2025 now seems fragile. The latest reports show a stall in new permits across Germany and France, suggesting that higher prospective building costs are already dampening construction demand. This rising uncertainty across the sector suggests an increase in implied volatility, making options strategies that benefit from price swings, such as straddles, potentially attractive.
