Australia’s construction industry is facing a renewed and rapidly intensifying cost crisis, with the conflict in the Middle East driving up fuel prices, disrupting supply chains and triggering steep material price hikes that are placing builders, contractors and major infrastructure projects at risk.
Industry analysts, including Rider Levett Bucknall (RLB), warn that the closure and disruption of key shipping routes near the Strait of Hormuz — a passage responsible for around 20 per cent of the world’s crude oil — has pushed up global fuel, freight and insurance costs.
Diesel prices in Australia have surged sharply, with flow‑on effects now hitting quarries, transport operators and material suppliers.
RLB notes that the conflict is already creating “upside risk to construction costs”, with energy‑intensive materials such as steel, cement, PVC and plastics facing immediate pressure.
Freight and shipping insurance premiums have also risen significantly, raising the cost of imported construction products and increasing the likelihood of delays.
The Australian Constructors Association (ACA) says the impact is being felt across the country, with suppliers imposing emergency fuel levies, freight surcharges and substantial price increases on essential materials. PVC pipes, for example, have risen by more than 35 per cent in recent weeks.
ACA CEO Jon Davies said the situation represents an immediate threat to the viability of construction businesses and the delivery of critical infrastructure.
“Skyrocketing material costs and supply shortages triggered by the conflict in the Middle East are putting businesses and major projects at risk,” Mr Davies said.
“During COVID, and again at the start of the Ukraine crisis, we worked with government and unions to implement short‑term measures that kept projects moving and protected businesses. Those measures are urgently required again.”
Davies said contractors are still being asked to take on fixed lump‑sum contracts that span multiple years, despite the extreme volatility in global markets.
“Contractors should not have to gamble the future of their businesses on events beyond their control,” he said.
“We need permanent mechanisms in contracts to deal with these infrequent but severe shocks. We cannot reinvent the wheel every time global markets are disrupted.”
The ACA is also urging unions to work with contractors to lift productivity to help offset rising costs elsewhere.
RLB’s analysis suggests that while the current disruption is primarily a price shock, a prolonged conflict could evolve into a supply shock, particularly for petroleum‑based products, imported components and energy‑intensive materials.
Such a scenario would further inflate costs and threaten project feasibility across residential, commercial and civil construction.
Davies said the federal government must coordinate both the immediate response and long‑term reform. He pointed to the National Construction Industry Forum’s construction blueprint and the National Construction Strategy as frameworks that should be accelerated.
“We’ve faced multiple shocks in recent years and not locked in the reforms that everyone knows are required to make the industry more resilient,” he said.
“Let’s not waste this opportunity.”
With fuel prices rising, material costs escalating and supply chains tightening, industry leaders warn that without swift intervention, Australia risks a new wave of project delays, contractor failures and cost blowouts — just as governments are relying on construction to deliver housing, infrastructure and economic growth.