This article first appeared in MFE.
When Iran closed the Strait of Hormuz at the beginning of March, multifamily investors took a beat and then sensibly returned to the business of running their companies. Since then, the conflict has evolved through periods of escalation, ceasefire negotiations, temporary agreements, and renewed tensions. Although oil prices have retreated from their peaks, Houthi attacks on Saudi oil tankers in the Red Sea underscore that the war’s volatility and economic reverberations remain real concerns.
As a result, multifamily investors are no longer evaluating only the immediate effects of the crisis. They must also consider how ongoing uncertainty could affect fuel costs, operating expenses, inflation, interest rates, and tenant behavior. Accordingly, it is worth taking a more careful look at the direct and indirect impacts of higher prices for gasoline, diesel, and other products—industrial chemicals, fertilizer, plastics, and detergents—that are extracted from a barrel of oil.
Diesel Sticker Shock Hits the Bottom Line
For multifamily investors, the price of diesel is more significant than the price of gasoline. Worldwide, diesel refining capacity has been carefully calibrated to demand, and Persian Gulf producers—whose oil is ideal for diesel distillation—play a major role in maintaining that balance. Because adding capacity anywhere in the world is time-consuming, complicated, and costly, the loss of this critical supply has contributed to a spike in prices, especially in the United States, where refiners are diverting more of their production to Asia and Africa.
Although diesel prices have retreated from their spring highs, they remain well above pre-crisis levels. Prior to the conflict, U.S. on-highway diesel averaged roughly $3.70 per gallon. After peaking above $5.50 per gallon in May, prices remain in the $5.30 range nationally, up $1.50 from a year ago.
The consequences for multifamily investors could be significant. Anything transported by truck or train—construction materials, maintenance supplies, replacement parts—is incurring price penalties at multiple points along the supply chain. Suppliers to the multifamily industry will be paying more for raw materials and components and charging more to deliver finished goods to their customers. In addition, construction companies and waste haulers will inevitably pass on at least part of the fuel surcharge to property owners.
The challenge is not limited to diesel. Petroleum is a crucial raw material for a wide range of building and construction materials, including insulation, PVC, sealants, roofing, and paving—and there will be a lag before prices for these materials return to pre-crisis norms, if ever. Insurance companies, noting increases in replacement costs, may raise premiums commensurately. As the chart below illustrates, energy inflation has historically been an early sign of broader inflationary pressures. Because higher fuel costs affect transportation, manufacturing, and supply chains throughout the economy, the impact of an oil shock often extends far beyond the energy sector itself.
Even if energy prices continue to follow the pattern of retreating during periods of de-escalation, higher costs incurred throughout the supply chain may take time to work their way out of the system, creating lingering pressure on development budgets and operating expenses.
While there is no cause for alarm, recent events have demonstrated that energy markets remain sensitive to geopolitical developments. Although oil prices rose sharply following the conflict, they remain below the peaks reached during previous periods of market stress over the past 15 years, including the commodity price surge of 2008 and the post-pandemic energy shock of 2022. Investors should avoid assuming a straight-line return to pre-crisis conditions and instead incorporate a wider range of cost scenarios into their planning.
Higher Gasoline Prices Shape Tenant Behavior
For tenants, the price of gasoline has more influence on household finances than that of diesel. The rural and suburban lifestyle that many consumers enjoy is premised on inexpensive gasoline. Residents in these areas have few alternatives other than cars to travel to work, buy groceries, visit the doctor, and pick up their children. Even moderately elevated prices at the pump can make a difference for those whose budgets are already tight, especially as higher food prices, driven by elevated diesel prices and petroleum-based fertilizers, kick in.
Higher transportation costs can affect renter behavior in a variety of ways. Some households may choose to devote a larger share of income to transportation expenses, while others may adjust housing plans or delay moving decisions altogether. Over time, these pressures can influence leasing activity, retention rates, and demand patterns across markets.
These shifting preferences may create opportunities for some investors and challenges for others. Since the pandemic, oversupply has been a major factor in determining market fundamentals like rent growth and occupancy rates. Looking forward, affordability pressures and demand patterns are likely to play a more significant role in shaping multifamily fundamentals.
It is important to remember, however, that these effects will not be distributed evenly across the country. Regional differences in taxes, distribution costs, and refining capacity mean some areas have experienced significantly sharper hikes than others. According to the Bureau of Transportation Statistics, the national average price of gasoline in June was $4.05 per gallon, 28.6% higher than a year earlier. Regional increases ranged from 25.6% on the West Coast, where gasoline averaged $5.21 per gallon, to 29% on the Gulf Coast ($3.55) and 36.7% in New England ($4.10).
Upward Pressure on Interest Rates
The war’s impact on energy markets has added another layer of uncertainty to the inflation outlook. The Personal Consumption Expenditures price index, the Federal Reserve’s preferred gauge, rose to 3.7% year over year in June, up from 2.9% in February (though slightly down from 4.1% in May). Meanwhile, the 10-year Treasury yield, which had been trending downward and briefly dropped below 4% before the crisis started, recently crossed the 4.7% mark for the first time since January 2025, reflecting renewed concern about inflation and the path of monetary policy.
While the Federal Reserve directly influences short-term rates, longer-term borrowing costs are driven largely by inflation expectations and broader market sentiment. The Fed held its benchmark rate steady in July, but three policymakers favored an increase as war-related fuel and food costs kept inflation above its 2% target. Continued energy-price uncertainty could therefore keep both monetary policy and longer-term financing costs elevated.
Taken together, these factors could temper the transaction recovery anticipated for the back half of 2026. Concerns about the course of the conflict, the security of shipping routes, and the direction of interest rates have led some investors to pause acquisition plans and reassess underwriting assumptions. They remain intent on preserving their options, looking for shorter terms, more extensions, and prepayment flexibility. They are also considering preferred equity, mezzanine financing, and other alternative capital solutions. These options are particularly important for investors facing a wave of loan maturities this year and next, whose loans typically reflect peak valuations and low interest rates.
The trajectory of the conflict and energy markets remains uncertain. Multifamily investors cannot control either, but they can prepare by maintaining flexibility in their underwriting, operations, and financing.
