Australia’s civil construction sector is currently the most exposed industry to the global fuel shock driven by the Middle East fuel crisis. Analysis conducted by economist Saul Eslake confirms that civil construction is more reliant on diesel than any other major sector of the economy and is therefore absorbing disproportionate cost increases. The effects are immediate and are placing project delivery, contractor viability, and infrastructure pipelines at risk.
Fuel Price Impacts
The Middle East fuel crisis has rapidly flowed through to Australian fuel markets. By the end of March:
- Petrol terminal gate prices increased by 90.7 cents per litre, a rise of 59.6 percent.
- Diesel terminal gate prices increased by 145.2 cents per litre, a rise of 88.9 percent.
These increases represent an abnormal cost shock rather than ordinary market volatility. Diesel price escalation is the primary risk, as diesel is the dominant energy input for civil construction activity.
Diesel Dependence of Civil Construction
Construction is more dependent on diesel than transport and agriculture. Within construction:
- Heavy and civil engineering construction consumes almost 2.5 times more diesel than residential and non-residential building combined.
- Civil construction relies on diesel for approximately 79 percent of its energy use.
This level of exposure means cost increases cannot be mitigated through substitution, efficiency measures, or short-term operational adjustments.
Scale of Exposure Across Projects
There is a substantial volume of engineering construction work currently underway or yet to be delivered that is exposed to diesel price escalation:
- Approximately $15 billion in public-sector road, highway, and subdivision work is being delivered by private contractors, largely under fixed-price contracts.
- Approximately $2 billion in equivalent private-sector work is also being delivered under fixed-price arrangements.
In both cases, the absence of rise-and-fall or escalation mechanisms leaves contractors fully exposed to fuel price movements, despite having no control over them.
Business Viability and Insolvency Risk
The construction industry already has the highest insolvency rate of any Australian industry. These risks have intensified since COVID:
- Construction company insolvencies have almost doubled.
- Around 3,500 construction businesses collapsed in the last year.
- Approximately 50,000 workers lost their jobs as a result.
Industry operating margins are typically between 1 and 3 percent. Fuel price increases of the current magnitude rapidly erode these margins, pushing otherwise viable projects into loss. Where contracts do not allow cost recovery, projects may become unviable, delayed, or abandoned.
Historical data shows that during 2022 and 2023, construction company administrations were 90 percent higher than the 2015–2019 average. Other sectors saw increases of less than 20 percent over the same period. A further wave of insolvencies is likely if current conditions persist.
Employment and Industry Scale
The civil engineering construction sector comprises:
- Approximately 10,000 businesses
- Approximately 193,000 employees, representing around 1.3 percent of total Australian employment
CCF member firms alone consume approximately:
- 88 million litres of diesel per month
- 1.15 billion litres of diesel per year
The largest share of diesel consumption is by medium-sized contractors using between 100,000 and 500,000 litres per month, followed by a smaller number of very large users exceeding 500,000 litres per month.
Broader Economic and Policy Implications
Failure to stabilise the civil construction sector would directly undermine national policy objectives, including:
- Delivery of 1.2 million new homes by 2029
- Achievement of 82 percent renewable energy generation by 2030
- Delivery of priority projects identified on Infrastructure Australia’s 2026 Infrastructure Priority List
- State, territory, and local government infrastructure programs across transport, water, energy, and utilities
Disruption to civil construction will flow through to households via higher costs for infrastructure-related services and delays to essential upgrades and maintenance.
Fuel Supply Risk Management
If fuel supplies are rationed or formally managed, civil construction must be treated as an essential industry, consistent with agriculture and transport. Failure to do so would compromise governments’ ability to deliver their own infrastructure commitments and maintain supply-chain continuity.
Required Responses
The report identifies the need for a coordinated national response, including:
- A consistent and practical mechanism allowing contract values to adjust in response to significant input cost movements, applying to both existing and future contracts and operating in both upward and downward directions.
- Targeted, time-limited government support through existing infrastructure funding mechanisms where abnormal fuel costs cannot be absorbed within current project budgets.
- Intervention designed to prevent project delays, scope reductions, contractor collapses, and long-term capacity loss in the civil construction market.
Conclusion
This is not a theoretical risk. Diesel price escalation is already impacting live projects and contractor solvency. Without intervention, the civil construction sector faces further insolvencies, project failures, and erosion of national infrastructure capability at a time when demand is historically high.
