How Do Rising Energy Prices Affect Timberland Investments and the Forest Products Industry?

February 2026 ended with the United States and Israel initiating joint strikes on Iranian and regional infrastructure targets. Ongoing and intermittent airstrikes, cyber operations, and retaliatory attacks continue to affect families, trade, travel, and markets around the world. In particular, Iran’s ability to constrain the Strait of Hormuz spotlights how this war has disrupted energy supplies and raised inflation to its highest level in two years.

The global price of oil serves as a key indicator for energy prices generally and economic instability. Since the U.S. war with Iran started, the price of oil has increased both in terms of level and volatility, regularly exceeding $100 per barrel. While extended higher oil prices translate into increasing costs throughout the economy as manufacturing and transportation of all goods become more expensive, how do they affect forestry products and timber?

Fuel Prices and Forest Products

In the forest products industry, rising oil and energy prices directly affect the costs of how firms make, move, and do things. Specifically:

Higher energy prices increase the break-even cost of making (manufacturing) forest products. Forisk tracks the cash costs associated with producing a range of forest products, including lumber, pulp, pellets, and structural panels (e.g., OSB and plywood). For most of these products in the U.S., energy accounts for 7% to 20% of the per unit manufacturing (production) costs, which does not include the cost of wood raw materials nor the cost of transporting finished goods.

Higher oil and diesel prices increase the cost to move (haul) wood raw materials and finished forest products. In the case of hauling logs from the woods to mills, each $1 dollar per gallon increase in the cost of diesel increases the per ton hauling cost by $0.90.

Higher fuel prices increase the cost of doing things such as harvesting trees, fertilizing forests, and managing timberlands. Logging relies on heavy equipment powered by petroleum products. Each $1 per gallon increase in the cost of diesel increases the per ton logging cost by approximately $0.70. Combined with increased hauling costs, adding $0.70 per gallon to current diesel prices could increase southern cut-and-haul costs by more than $1 per ton.

Past Forisk Silviculture Surveys highlight factors affecting forest management practices in the U.S., including the sensitivity of fertilization costs to petroleum prices. Fertilizer price increases can take time to work through the system, as analysis by Dr. Shawn Baker indicates per acre costs closely mirror prior-year petroleum prices.

In the forest industry, each part of the supply chain captures a piece of the end-product price paid by the ultimate user. When energy and oil take bigger shares of what a firm gets for a roll of pulp or stick of lumber, less is left over for the landowner, logger, or institutional shareholder. Higher oil prices, without commensurate increases in productivity or substitutions with other power sources, increase the out-of-pocket costs and reduce the margins, profitability, and sustainability of manufacturing, hauling, and in-woods operating activities in the forest industry.

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