Economic Impacts of the U.S. -Iranian War on the Hardwood Industry

The hardwood industry is no stranger to economic volatility, and 2026 has proven to be another test of its endurance. Early in the year, key cyclical drivers such as energy prices, inflation, and mortgage rates showed encouraging signs of improvement, suggesting sustained positive momentum. However, the sudden escalation of the U.S.-Iran conflict quickly disrupted that trajectory, reversing key gains and casting a shadow over the industry’s economic outlook.

In this article, we examine the economic impacts of this conflict on the hardwood industry in four key areas:

• Energy prices and inflation

• Housing and mortgage rates

• Consumer spending and credit

• Global trade and exports

Energy Prices and Inflation

When the conflict halted the flow of oil through the Strait of Hormuz, fuel costs spiked, leading to much higher prices for oil, gas, and diesel. This led to surges in freight rates both on land and sea, making some freight orders unprofitable and forcing some secondary manufacturers and lumber producers to delay, reduce, or cancel orders. Rising energy costs pushed inflation back up (with CPI climbing 0.5% in May), causing real average hourly earnings to decline for three consecutive months (March, April, and May).

Housing and Mortgage Rates

The geopolitical shock ended a nine-month downward trend in mortgage interest rates. Average rates climbed back toward 6.5% by late June, worsening home affordability and, in turn, decreasing the demand for hardwood products. When housing markets are healthy and trending toward affordability, demand for grade hardwood lumber is historically higher in U.S. and Canadian markets.

Potential buyers and homebuilders noted that mortgage rates needed to remain between 5.5% and 6.0% to boost construction and home sales meaningfully.

Yet, a real glimmer of hope remains in the steady momentum of the remodeling market. Home renovation projects carry substantial weight for hardwood demand, accounting for two-thirds to three-quarters of all wood cabinet and flooring installations. Because many homeowners finance these upgrades through savings rather than loans, high interest rates haven’t stalled their progress. After spending $376 billion on repairs and remodeling in 2025, Americans are currently on track to top $400 billion this year.

Consumer Spending and Credit

As real wage growth turned negative and everyday essentials like food and fuel grew more expensive, consumers relied more heavily on revolving credit. These financial pressures forced households to cut back on discretionary purchases, including new furniture and hardwood products. Even when homeowners did make housing or furniture upgrades, cost-conscious buyers increasingly turned to wood substitutes such as medium-density fiberboard (MDF), engineered flooring, and luxury vinyl tile (LVT), allowing these alternative materials to capture greater market share.

Broader economic anxiety tied to the conflict also weighed heavily on household confidence, driving U.S. consumer sentiment down for three consecutive months to an all-time low in May 2026 before seeing a modest rebound in June.

Global Trade and Exports

High fuel costs and severe shipping lane disruptions caused U.S. hardwood lumber exports to the Middle East and North Africa to drop sharply in March and April. Overall hardwood consumption remains essentially flat in 2026 (+0.2%) and stands 25.7% below 2020 levels.

Total grade lumber consumption across domestic and export markets is pacing at its lowest level since 2009, with a projected 3.4% overall decline this year as war-related disruptions cut short early momentum. While railway tie production has fallen 15% year-over-year, industrial consumption has provided a rare bright spot, rising 3.0% thanks to solid gains in pallets (+11.3%) and mats/timbers (+7.5%).

Source: HMR Executive, Fastmarkets, Volume 20, Issue 7, July 2026

In Summary

Early-year momentum in the hardwood lumber industry stalled abruptly with the onset of the U.S.–Iran war, as fuel price spikes, rising inflation, and climbing mortgage rates relaxed domestic demand. Overseas sales faced similar friction, dampened by geopolitical instability and slow growth in key foreign markets. At the same time, affordable lookalike products continue to erode market share in flooring and cabinetry, while a drop in railroad tie purchases has removed a vital safety net for sawmills—though analysts expect tie demand to recover once regulators rule on a pending rail merger.

Ultimately, the industry’s near-term outlook hinges on geopolitical resolution. An agreement to end U.S.–Iran military operations offers hope for a return to earlier positive industry trends.

Stay Informed and Prepared

While 2026 has already delivered its share of headwinds, navigating uncertainty is nothing new for the forest products community. Economic shifts, political tensions, and shifting regulations will always bring a degree of unknown, but they also spark the kind of innovation that moves our industry forward. Demand creation is now a strategic necessity, as hardwood must compete on design, performance, sustainability, and long-term value against its competitive substitutes.

By staying informed, agile, and prepared, we can turn today’s challenges into tomorrow’s strategic advantages.

By DR. JOHN HATCHER, JR., PH.D., CF,

Executive Director, North Carolina Forestry Association