Advocacy ALERT

Sanctions on Russia may trigger higher building costs

Learn how to mitigate risks by attending CCA’s CONnected webinar

More than five weeks into Russia’s invasion of Ukraine, world markets are still adjusting to the economic shocks caused by western sanctions on Russia.

Ranked number one, two, and three among the world’s exporters of natural gas, oil, and coal, respectively, Russia is a major player in global energy markets.

While Canada’s reliance on Russia appears minor – energy imports from Russia in 2021 amounted to only 0.93 per cent of the total share of energy imports into Canada – Canadian dependence on global supply chains facilitates the transmission of economic sanctions into the Canadian economy.

What items are sanctioned?

Schedule 4 and Schedule 5 of the recently amended Special Economic Measures (Russia) Regulations include a list of goods prohibited from being imported into Canada. The list mainly includes components used to construct structures and instruments for oil exploration and production. It also includes crude, petroleum oils, and petroleum gases.

To learn more about how sanctions may impact your operations, CCA is hosting a CONnected webinar, Canadian sanctions on Russia – Impact on construction, on April 21 at 13:00 (ET).

What does this mean for the Canadian economy and the construction industry?

Although Russian oil imports to Canada are relatively minor, Russia’s role as a major exporter of energy goods has caused uncertainty in global energy prices. For example, following the invasion on February 24, the price of Brent Crude oil soared, peaking at 16 per cent in mid-March.

The erratic behaviour of energy prices is causing commodity prices to experience high fluctuations. This added uncertainty has translated into increased costs for transportation and production of commodities, some of which are materials commonly used in building construction.

Inflationary effects on construction materials may come from higher transportation costs (Baltic Dry Index peaked at +26.87 per cent), higher costs of energy-intensive produced materials, or diminished supply of raw materials and metals produced in Russia and Ukraine. Examples of these materials include steel and concrete.

The commodity market can expect an increase in the building construction price index similar to the one caused by the quick rise of oil prices during the pandemic (metals +3.5 per cent; concrete +3 per cent; asphalt +3.5 per cent). The extent of inflationary pressure on the market will be dependent on the duration of the sanctions on Russian crude derivatives.