Iran war: Why construction is one of the industries hit first and hardest in a fuel crisis
Monday, 23 March 2026
Escalating fuel prices are already hitting the construction sector, upping the risk of project cost blowouts, and that’s left many asking who will have to pay.
But it’s not just higher fuel prices that will pose risks to the sector, experts say.
The Commerce Commission’s latest fuel price monitoring report showed prices have gone up by about 55c per litre for petrol and 90c per litre for diesel since the start of the conflict in the Middle East.
And with no end in sight for the conflict, or for the closure of the Strait of Hormuz, an important global oil shipping route, further rises are expected, and talk of supply issues has begun.
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Construction was always going to be one of the industries that was hit first and hardest.
That’s partly because there’s a lot of transportation and freight involved, and partly because a high proportion of oil-related products, such as bitumen and resin, are used in the sector.
Building Industry Federation chief executive Julien Leys said they were already seeing an impact from higher fuel prices in domestic freight as 70% to 80% of materials were transported around the country by road.
One big logistics company had already notified its supply chain that it would have to increase its fuel adjustment factor immediately given the nature of the global fuel cost situation, he said.
“In some cases, the supply chain is trying to absorb the increased costs to some extent, but there comes a point when they have to pass it on.
“Some suppliers will be looking at force majeure clauses, which relate to liability in the case of unforeseeable events, like a war, in contracts already.”
The big question was how long the situation went on for and where prices went, he said.
“For projects that are under way, we’ll probably start to see price adjustments, and instalments going up, and it will be time for negotiations with the client. If they don’t want to absorb extra costs it could be an issue.”
Simpson Grierson construction partner Lisa Curran agreed rising costs and who those costs were passed onto - contractor or client - were one of the risks for the sector.
It was important clients understood what the cost risk was and where it lay, but whether a contractor could pass on increased costs to the client would depend on the contract, she said.
“It is about whether the contract provides for cost escalation and the basis of payment under the contract.
“New Zealand’s standard form of construction contract, NZS 3910, provides that cost escalation applies unless the parties opt out in the specific conditions. But there might be different payment mechanisms.”
But the other looming, and potentially bigger risk was around the supply of fuel, and the potential for a shortage, particularly of diesel, she said.
“That’s not an issue now, but if fuel becomes scarce and the National Fuel Plan kicks in and leads to restrictions on supply that could impact on the progress of construction projects.
“This could entitle a contractor to an extension of time where the circumstance was not reasonably foreseeable at the time of tendering, and fuel scarcity due to the war in Iran is likely to qualify.”
Curran said under the standard contract, an early warning notice had to be provided when an issue might affect the contract price or delay the completion of the contract works.
Lots of her clients were now getting early warning notices from contractors, but that was good because it allowed the parties involved to talk about the situation, and how best to deal with it, she said.
“The contract will allocate risk, but the discussion of the impact on the project is key, regardless of who bears the risk of this event under the contract.
“It allows consideration of options to mitigate the impact, and will determine if different methods or supply chains are used, or whether there will be work sequence reprogramming.”
Anyone who was in the midst of negotiating a construction contract should consider how potential fuel supply uncertainties should be addressed in the contract, she added.
For Leys, another big risk lay in the fact that 90% of the building products used in New Zealand were imported, either as finished goods or as key imported components.
“So what happens if some of the big shipping companies, such as Maersk, decide that some routes are not profitable, and stop coming to New Zealand, as happened during Covid. Imagine how that could impact on projects.”
Infometrics chief forecaster Gareth Kiernan said it was early days yet but higher transport costs and international shipping costs would feed into price aggregates and ripple through the sector.
There was significant risk of a repeat of what happened four years ago with building supply shortages, and a big ramp up in construction costs, he said.
“The difference in how things play out comes down to how much of this is temporary. Even if the conflict ends and price pressure eases, some of the broader increases in the economy will be more permanent and become sticky on the way down.”
It was not a great outlook, and could have a negative impact on the drive to get some of the planned big infrastructure projects, such as roads of natural significance going, he said.