A deep dive into what is driving material price spikes, what the government has done, what it has not done, and the three scenarios that will shape the next six to twelve months of construction in Australia.

Something changed on 28 February 2026.

US and Israeli forces launched coordinated airstrikes on Iran. The Strait of Hormuz, the narrow waterway through which roughly 20 per cent of the world’s oil and gas travels, went from a functioning global artery to a contested war zone almost overnight.

By mid-March, Iranian forces had attacked merchant shipping. War-risk insurance premiums on Hormuz transits had jumped between 50 and 100 per cent. Major carriers suspended Gulf transits. Diesel prices across Australia rose by more than 40 per cent in four weeks. And suppliers of PVC pipe, plastics and plumbing materials were sending urgent emails to tradies warning of price hikes that builders had never seen before.

Construction is a long way from the Middle East geographically. But through fuel, freight, materials and finance, it is deeply connected to what happens there.

Your audience has been asking the right questions. Here is what the research shows.

What Is Actually Happening in the Middle East

The 2026 Iran war, as analysts are now calling it, began with a US and Israeli strike campaign that killed Iran’s Supreme Leader Ali Khamenei and dozens of senior military figures. Iran retaliated with missile and drone strikes against US bases and Gulf states including Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE.

For the first time in history, both of the Middle East’s critical shipping corridors were closed simultaneously. The Strait of Hormuz, which handles around 20 million barrels of oil per day, and the Red Sea/Suez Canal route, which was already disrupted by Houthi attacks through 2024 and 2025, are both effectively closed to normal commercial traffic.

According to freight logistics firm D&D Worldwide Logistics, approximately 138 container ships were trapped in the Persian Gulf in early March 2026, representing around 470,000 twenty-foot equivalent units of cargo. War-risk insurance premiums have surged 50 to 100 per cent. Several Protection and Indemnity clubs have cancelled Gulf coverage entirely.

Oil prices have responded sharply. Dubai crude hit US$166 per barrel on 19 March, a record. Brent crude has been trading above US$114 per barrel as of late March. UN ESCAP data estimates oil up roughly 45 per cent and gas up roughly 55 per cent since late February.

This is not a regional skirmish. Defence analysts are calling it the world’s largest supply disruption since the 1970s oil crisis.

What This Means for Australian Construction

Australian builders are feeling this in three distinct ways.

1. Fuel and transport costs

Construction is a diesel-powered industry. Every piece of equipment on a residential job site, every materials delivery, every concrete truck runs on diesel. When diesel jumps, the cost base of every project moves with it.

Diesel prices across Australia rose more than 40 per cent in the weeks after the conflict escalated. The national residential construction cost index, which had been broadly stabilising, now shows the fastest annual growth since late 2024. Material cost hikes are expected to show up more clearly in second-quarter 2026 data.

Civil Project Partners Director Ryan O’Neill described it bluntly: “Construction is fundamentally a diesel-powered industry. When fuel prices move, the impact is felt immediately across plant operations, transport costs and materials production.”

2. Material price spikes

The numbers coming from suppliers are significant. An internal email from major supplier Iplex, obtained by The Nightly, advised Reece Plumbing customers of steep price increases set to take effect from 17 April. PVC products up 27 per cent. Polyethylene up 36 per cent. Polypropylene up 31 per cent.

These are not small adjustments. These are products that go into every single new home built in Australia.

A Master Builders Australia spokesperson confirmed builders are being hit with fuel and product surcharges across transport, concrete and other critical inputs. Supply chains for tiles and plastics are also facing disruption.

The reason petroleum-derived materials are particularly exposed is direct: PVC, polyethylene and polypropylene are made from oil and gas. When Hormuz closes and oil prices spike, the upstream production cost of these materials climbs immediately. The shipping disruption then adds a second layer of cost pressure on top.

3. Contracts and fixed-price exposure

For builders on fixed-price contracts, the situation is especially difficult. Many have existing agreements with clients that do not allow for cost escalation clauses triggered by geopolitical events.

National construction law firm Thomson Geer confirmed that contractors face escalating delivery costs, mainly for materials and labour, that are often not recoverable from the principal under fixed lump sum arrangements.

The Australian Constructors Association put it plainly: contractors are being asked to price projects over many years while absorbing costs driven by events entirely beyond their control.

What the Government Has Done

The Albanese government has moved on several fronts since the conflict escalated. Not all of it directly supports the construction industry, but the overall package is relevant to builders.

Fuel excise halved from 1 April 2026

Announced on 30 March 2026 following a National Cabinet meeting, the government will halve the fuel excise from 52.6 cents per litre to 26.3 cents per litre for three months, from 1 April to 30 June. This is expected to reduce the cost of a 65-litre tank by approximately $19.

The fuel excise cut is the headline measure and the one that matters most to builders operating trucks, plant and equipment. Treasurer Jim Chalmers confirmed the package will cost the federal budget around $2.55 billion over the three-month period.

Heavy vehicle road user charge reduced to zero

Alongside the excise cut, the government also reduced the heavy vehicle road user charge, which currently adds 32.4 cents per litre to diesel costs for vehicles over 4.5 tonnes gross vehicle mass, to zero for the same three-month period. A scheduled increase to this charge has also been deferred by six months.

For builders operating delivery vehicles, concrete trucks or heavy plant, this is a meaningful additional saving on top of the excise reduction.

Fuel quality standards temporarily lowered

Earlier in the crisis, the government lowered Australia’s fuel quality standards under the Fuel Quality Act to allow higher-sulphur diesel into the country for a 60-day period. The intent was to widen the range of available fuel supplies and reduce the risk of physical shortage.

Emergency fuel security legislation

Energy Minister Chris Bowen introduced emergency legislation to parliament to boost fuel stocks and shore up supply. The government also underwrite oil shipments and released emergency reserve stocks.

Construction industry roundtable

Treasury Minister Clare O’Neil convened a meeting with building and construction industry leaders in mid-March. According to a statement released by the Treasury Ministers office, industry raised specific concerns about fuel shortages, PVC and plastics supply disruption, diesel-intensive civil construction activity and the impact on apprentices and the skills pipeline.

The government stated it would continue to work with industry to monitor price pressures and supply chain disruptions, with a focus on supporting the sector to deliver the homes Australians need. Exploratory work on alternative markets and substitute inputs was flagged.

What the government has not done

There has been no direct construction-specific relief package as of the end of March 2026. The fuel excise cut is a broad economy-wide measure. It helps builders, but it was designed to help all motorists and businesses.

The Australian Constructors Association has called for urgent short-term support including project-specific rise-and-fall provisions, similar to measures introduced during COVID and the Ukraine conflict. That has not arrived yet.

Master Builders CEO Denita Wawn has been direct. With the federal budget weeks away, she described the situation as urgently requiring responsible tax incentives, elevated workforce and infrastructure investment and a simpler regulation system. The Middle East conflict has compounded an already difficult environment.

The fuel excise cut is real and welcome. But for builders on fixed-price contracts watching material costs rise 27 to 36 per cent, it does not close the gap.

How Long Will This Last: Three Scenarios

This is the question builders are asking most. The honest answer is that nobody knows, but the range of outcomes is becoming clearer.

Scenario One: Resolution by mid-year (roughly 25 per cent probability)

A diplomatic deal is reached within four to eight weeks. Iran transitions toward new political leadership following the death of Khamenei, and a US-brokered framework ends major combat operations by May or June. Shipping through Hormuz partially resumes. War-risk insurance premiums fall. Oil prices stabilise in the USD$80 to $90 per barrel range.

In this scenario, material price spikes partially unwind, though not immediately. Shipping markets built around Cape of Good Hope diversions take several months to fully normalise. Supply chain analysts estimate even after a ceasefire, three to four months are required before flows return to something approaching normal. For builders, this means some relief from Q3 2026, but ongoing pressure through the middle of the year.

Scenario Two: Extended conflict through late 2026 (roughly 45 per cent probability)

This is the central scenario flagged by most analysts. Capital Alpha Partners assessed there is a 45 per cent probability the war is settled in the second half of 2026. The conflict continues, with neither side reaching a resolution quickly. US forces may conduct ground operations around the Strait of Hormuz. Fighting spreads in Iraq and potentially Yemen, threatening the Red Sea routes that had partially reopened.

In this scenario, oil remains above USD$100 per barrel through mid-2026. Freight surcharges stay elevated. Material costs for petroleum-derived products remain 20 to 35 per cent above pre-conflict levels. The fuel excise cut expires in June and the government faces a decision on whether to extend, at a cost of several billion dollars more to the budget.

For Australian builders, this means sustained pressure on project economics. Fixed-price contracts remain a significant liability. Cash flow management becomes critical.

Scenario Three: Conflict extends into 2027 (roughly 35 per cent probability)

The most concerning scenario. Capital Alpha Partners assigned a 35 per cent probability that the conflict extends into 2027. This would represent an unprecedented sustained disruption to global energy and shipping markets.

Global economic forecasters are already responding. The OECD has stated clearly that global growth faces significant downside risks and that in an adverse scenario where energy prices peak higher and stay elevated longer, global growth would be 0.5 percentage points lower and inflation 0.9 percentage points higher.

For Australian construction, this scenario means the post-pandemic stabilisation of material costs is definitively over. Project pipelines would face renewed uncertainty. Financing conditions would likely tighten as inflation re-emerges. The government’s 1.2 million homes target, already under pressure, would drift further away.

In short: the base case among analysts points to several more months of disruption at minimum, with a meaningful probability of impacts stretching well into 2027.

What Builders Can Do Right Now

The good news, if there is any, is that builders who navigate this well are doing so by going back to basics.

• Review fixed-price contract exposure. Identify which active contracts have no escalation provisions and understand your exposure before costs arrive. Legal advice on force majeure or unforeseen circumstances clauses may be relevant depending on your state.
• Document cost movements now. Screenshots, supplier notices, price comparisons. If you need to make a claim or negotiate with a client, evidence from the first days of the price spike is what holds up.
• Talk to suppliers early. Suppliers are in the same position. Many would rather negotiate a forward arrangement than lose a builder relationship. Early conversation gives you more options than a reactive one.
• Fuel tax credit adjustments. With the excise halved from 1 April, the fuel tax credit rates for off-road use will also change. Talk to your accountant to ensure your BAS reflects the updated rates.
• Watch the budget in May. The federal budget is weeks away. The industry is lobbying hard. If rise-and-fall provisions, construction-specific relief or contract reform are announced, you want to know immediately.
• Hold volume discipline. The builders who came through COVID intact were largely the ones who capped work at what they could absorb. The same logic applies here. Taking on more volume than your supply chain can reliably price is a risk, not an opportunity.

A Note on the COVID Comparison

The comparison to COVID keeps surfacing in industry commentary. It is worth examining directly.

The similarities are real. Both events triggered sudden, widespread supply chain disruption. Both created immediate cost spikes that builders on fixed-price contracts could not recover. Both generated calls for government intervention on rise-and-fall provisions.

During COVID, Australian residential construction costs rose a cumulative 30.8 per cent. The national residential construction cost index currently sits roughly 35 per cent above late-2019 levels, meaning the sector was already carrying significant post-pandemic cost elevation before the Middle East disruption landed.

The difference is the origin of the shock. COVID was a demand shock initially, then a supply shock. The Hormuz crisis is primarily an energy and supply shock. The transmission mechanism into building costs is faster in some areas, such as petroleum-derived materials, and slower in others, such as timber or labour.

There is also a key structural difference. During COVID, interest rates were at record lows, government stimulus was flowing freely and consumer demand for housing was surging. In early 2026, the Reserve Bank of Australia had only recently been cutting rates, the housing market was finding its footing, and business sentiment had just started improving when the conflict struck.

This is a different backdrop. Relief may be harder to sustain at the same scale, and the industry is entering this disruption with less buffer than it had in 2020.

A full comparison of these two shocks is worth its own article. Watch this space.

The Bottom Line for Builders

The Middle East conflict is not a background news story. It is directly affecting what you pay for diesel, pipe, concrete and materials delivery. That is already happening. The question is how long it lasts.

The government has moved. The fuel excise cut and the zeroing of the heavy vehicle road user charge are meaningful steps. They do not solve the problem. They reduce it.

The construction industry needs more. Specifically, it needs contract frameworks that do not force builders to absorb costs caused by events entirely outside their control. That conversation is happening. Whether it produces action before the next round of price spikes arrives is the question worth watching.

For now, stay close to your numbers. Document everything. Talk to your suppliers and your lawyer. And understand that the builders who come through this in good shape will be the ones who treated it seriously from day one.

Stay across this story as it develops.

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