Industry leaders are describing the current supply chain environment as "like COVID again" — with diesel costs, shipping rates, and materials prices surging across every layer of Australian construction. If you're on a fixed-price contract right now, you need to understand your exposure.
Alarm bells are ringing across Australia's residential and civil building sectors. The near-complete closure of the Strait of Hormuz — through which roughly 20 per cent of the world's crude oil flows — is driving cost pressures through every layer of the Australian construction supply chain. For builders, subcontractors, and project owners alike, the ripple effects are becoming impossible to ignore and, for many, impossible to absorb.
Australia doesn't import oil directly from Iran. But the refineries across Asia that supply our fuel, materials, and manufactured products are heavily dependent on Middle Eastern crude. When that supply is disrupted, energy costs spike across the entire Asian manufacturing belt — and Australia feels it downstream.
The immediate effects are already landing on site:
Fuel shortages have already hit some regional areas, and six fuel shipments to Australia due after mid-April have been cancelled or deferred. Master Builders Australia CEO Denita Wawn has reported that fuel surcharges are being reassessed weekly by suppliers — currently running at eight to ten per cent above standard freight costs.
The cost pressures aren't stopping at the fuel bowser. One Sydney quarry owner told the ABC that diesel represents around 20 per cent of his site's overheads. His business introduced a fuel surcharge effective mid-March — translating to a price rise of more than five per cent on sand alone.
Central Victorian builder Bradley Vagg has described receiving immediate fuel surcharge notifications from suppliers covering concrete, bricks, and roof flashings. "Anything that pretty much comes on a truck and needs to be freighted to site has gone up in price due to the fuel," he said. "We sort of have no choice. They have what we want, and if we're not willing to pay the increase, then they just won't bring it to site."
The Australian Flexible Pavements Association has warned that bitumen prices are anticipated to rise by more than 50 per cent, with a real risk of stock depletion in the near term. But the most acute challenge may be in the pipe industry. Asian manufacturers that rely on crude oil to make petrochemicals are declaring force majeure — breaking existing contracts and repricing significantly. Multiple piping companies have already sent letters warning that quoted prices will soon be invalid.
The Urban Development Institute of Australia's Queensland branch has issued an urgent alert to members about "new and rapidly escalating challenges with materials shortages," warning that the industry is now experiencing shortages in concrete pipes and plastic pipes with no viable alternatives in sight.
The vast majority of building in Australia operates under fixed-price contracts with limited, if any, rise-and-fall provisions. That means builders carry these cost surges — in full.
Master Builders Australia has been direct: many builders were already operating on slim margins before the conflict began. With materials price rises and domestic delivery surcharges now being applied by suppliers, some builders on fixed-price contracts could soon be operating at a loss.
Denita Wawn has called it plainly: "Builders need flexibility from government and private sector clients around completion dates and, where possible, contracts need to facilitate the sharing of the impact caused by unexpected cost increases outside the builder's control."
"A short conflict may result in a contained, temporary price increase that unwinds; a longer conflict would raise the risk of broader escalation, procurement disruption and tighter project feasibility. Overall, the Middle East conflict should be treated as a live cost-risk issue rather than a settled escalation outcome."
Leading construction law firms are urging project participants to act immediately. The key questions to answer in your contract right now are:
Mallesons notes that parties should carefully examine their contractual arrangements and open a dialogue with their counterparty about ongoing impacts. Force majeure provisions vary widely, and strict notice deadlines matter — a missed notice can cost you your rights entirely, regardless of how legitimate your underlying claim is.
The Albanese Government has announced a National Fuel Security Plan — including halving fuel excise for three months (a total reduction of 32 cents per litre), cutting the Heavy Vehicle Road User Charge to zero, and releasing 20 per cent of Australia's fuel reserves targeted at regional areas. These are meaningful measures, but for builders on fixed-price contracts absorbing cost spikes today, they are a buffer, not a solution.
The Strait of Hormuz blockade has triggered the most significant energy supply shock to hit Australian construction since the pandemic. Material prices are rising across the board, fixed-price contracts are under extreme pressure, and force majeure notices from overseas suppliers are already landing.
Understanding your contractual position — and documenting every impact from fuel surcharges to delayed deliveries — has never been more critical. The industry is resilient. Builders are already adapting. But as Master Builders SA CEO Will Frogley puts it: "Until the supply chain frees up, you can expect to see building times increase."