Diesel underpins nearly every activity on a construction site. Excavators, cranes, compactors, and generators all run on it, as do the trucks delivering the concrete, steel, timber, and prefabricated components to site.
When fuel costs rise, this hits construction businesses in two ways: directly, through the cost of transporting equipment, workers, and inputs to and from site; and indirectly, in the production of materials resulting in the increased cost of materials. Steel, cement, glass, plaster, and ceramics all carry significant embedded energy costs, and when fuel prices rise, so do they.
The cost implications are wide ranging, flowing through into subcontractor day rates, materials delivery invoices, and plant hire charges.
Spike in fuel prices resulting from Iran conflict
Australian fuel prices surged in the days following the joint US-Israeli military strike on Iran on 28 February 2026. Iran sits astride the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s seaborne oil passes, and any threat to that bottleneck results in rapid cost increases across crude markets. Brent crude jumped sharply on news of the strikes, and Australian petrol and diesel prices followed suit within days. For a construction business running a fleet of excavators, concrete trucks, and delivery vehicles, it is a direct hit to the operating cost of every project.
The pressure on construction firms from fuel prices is not new, but the Iran conflict has sharpened it. Between January 2003 and December 2006, the average monthly price of fuel in metropolitan Sydney rose by 25.2 per cent. Since the end of 2007, petrol prices have climbed a further 34.7 per cent. Diesel prices have risen by more than 50 per cent in most Australian capital cities since the beginning of 2003. Firms relying on large fleets to move equipment and materials, have seen sustained pressure on profit margins for years.
Risk management and insurance strategies
For builders navigating periods of extreme fuel volatility, understanding the insurance benefits and risk mitigation strategies available to them can ease some of the impacts. This is particularly true for remote projects in isolated areas, where materials, equipment, and labour must travel long distances. Here, fuel volatility can significantly extend the time and cost required to replace damaged items or remobilise contractors following an incident such as fire, storm damage, or transit loss. These risks are further compounded in regional areas, where service stations are vulnerable to supply shortages and panic buying can quickly exhaust local fuel stocks.
Escalation endorsement
Contract Works policies can include an endorsement for contract price escalation, which increases the insured value to account for unexpected cost increases during the construction period. This clause is especially valuable for fuel-intensive projects, such as heavy civil construction in regional areas, where transportation and heavy machinery costs make up a significant portion of the overall budget.
Builders should ensure that the sum insured reflects realistic replacement costs, particularly in periods where fuel volatility is uplifting logistic and equipment costs. If your policy already has the benefit of this endorsement, policyholders should ensure the conditions of notification are reviewed. Most policies will require notification to insurers when costs escalate beyond a specifically defined threshold and typically cap the claim at a percentage of the original contract sum.
Inflationary protection
Contract Works policies can be extended to cover escalating construction costs arising from insured damage. Where such damage delays project completion, the policy may indemnify the policyholder for cost increases to fuel, labour, services, and materials, provided those increases are attributable solely to inflation during the delay period.
Cover under such extensions will typically exclude increases arising from unrelated delays, design changes, improvements, altered construction methods, or acceleration of works. It will not cover liquidated damages or contractual penalties, and any recovery secured from a responsible third party will reduce the insurer’s liability accordingly.
Delay in Start-Up Insurance
Delay in StartUp Insurance (DSU) becomes relevant during periods of fuel price volatility because it protects the financial performance of a project if physical damage covered under Contract Works Insurance pushes completion beyond the planned start date.
DSU responds by covering losses such as foregone revenue, additional financing costs, or increased expenses required to accelerate works, helping businesses ensure that a single insured disruption does not cascade into a major financial setback for developers and investors.
Practical measures to reduce exposure
Beyond insurance, builders can take several practical measures to reduce exposure to fuel volatility:
- Include escalation clauses in contracts tied to fuel or transport.
- Review project contingencies to account for logistics cost increases.
- Optimise plant usage to reduce unnecessary idle machinery time.
- Coordinate deliveries to minimise transport runs.
- Consider fuel surcharges or cost-sharing arrangements with subcontractors.
Conclusion
The right risk management approach can soften the financial impact of volatile fuel prices affecting Australia. Ensuring that Contract Works policies include appropriate escalation and inflationary provisions, considering obtaining Delay in Start-Up cover, and actively managing logistics and plant usage are all important steps in protecting project profitability.
If you are unsure whether your current insurance program adequately reflects these risks, reach out to the Bellrock team to discuss your project. Bellrock works with builders, developers, and project owners to structure insurance programmes that respond to the risks facing construction projects.
