Since the United States and Israel launched military operations against Iran on 28 February 2026, Iran’s effective closure of the Strait of Hormuz has removed approximately one-fifth of global oil supply from the market — the largest disruption to world energy supply since the 1970s. New Zealand, which imports 100% of its refined fuel — predominantly from South Korean and Singaporean refineries that themselves rely on Middle Eastern crude — is acutely exposed, creating substantial pressure on New Zealand’s existing fuel supply. The national average price for 91 octane petrol has risen in excess of $3.41 per litre, with diesel surpassing petrol for the first time at $3.49 per litre. While the direct cost of fuel increases, this places wider pressure on increasing costs associated with materials and labour.
The National Fuel Plan sets out New Zealand’s response to potential fuel supply disruptions and emergencies. This plan details a 4-level escalation framework ranging from level 1 (watching) to level 4 (formal rationing). New Zealand is currently operating under Level 1. However, with the real supply impacts expected to bite from mid-May, the risk of escalation is material.
So how do these pressures affect the construction industry, which depends on fuel to power sites, operate machinery, and transport workers? And what can contractors do to protect themselves?
Impact on Construction
The impact of the fuel disruption is two-fold: availability and cost.
Rising fuel prices are flowing through into the cost of other goods and services. We have already seen a recent increase in the cost of building products by 15%. This week, plumbing suppliers have also signalled upcoming cost increases of up to 25%.
If fuel supply tightens further, contractors may be unable to operate diesel-powered machinery onsite, get workers to site, or secure timely delivery of materials. All of which can lead to delays to completion and expose a contractor to liquidated damages.
Protection 1: Extension of Time Provisions
Under NZS3910 (both 2013 and 2023 versions), a contractor may claim an extension of time (but not cost relief) for delays caused by circumstances that were:
- not reasonably foreseeable by an experienced contractor at the time of tendering; and
- not due to the fault of the contractor.
For contracts entered into before the conflict began (approx. 28 February 2026), fuel-related disruptions are likely to satisfy this test. For contracts tendered or entered into after that date — and particularly after the Government released the Fuel Response Plan on 27 March 2026 — the disruptions may be considered reasonably foreseeable, making this clause harder to rely on. The precise timing of the tender, execution of the contract, and express wording under the contract are critical here.
Contractors currently negotiating or tendering NZS3910 contracts should include a Special Condition which allows for an extension of time for fuel related impacts, covering:
- delay in supply, or unavailability of fuel, which impacts the operation of the machinery on site;
- unavailability of fuel which impacts or limits the ability of staff/labour to travel to site;
- rationing of fuel by suppliers;
- delays in the delivery of materials or related items to site as a result of fuel disruption;
- increases in fuel prices which render it commercially impracticable to operate machinery and/or for staff/labour to travel to site;
- increases in the cost of materials that can be attributed to the increase in fuel prices; and
- any escalation in the National Fuel Plan phase levels resulting in a site shutdown (although this may in some cases be covered by change in law provisions).
Protection 2: Variations
Fuel price increases are unlikely to fall within NZS 3910’s standard express or deemed variation provisions. Contractors should review their Special Conditions for any bespoke entitlements.
Protection 3: Cost Fluctuations
NZS 3910 provides an optional cost fluctuation clause, enabling price adjustments under the formula at Appendix A. Contractors on current contracts who have opted in can seek adjustments for increased fuel and material costs. Those who have not should consider approaching the Principal to negotiate a commercial arrangement, given the extraordinary shift in market conditions since late February.
For future contracts, parties should strongly consider opting in to the cost fluctuation provisions — even if this is limited to fuel and fuel-affected materials.
Our Comment
The fuel supply disruption poses a unique risk allocation challenge for the construction sector and beyond just the direct costs of fuel which consumers see at the pump. With supply uncertainty intensifying and prices continuing to rise, contractors should act now — reviewing existing contracts for available relief and ensuring future contracts clearly allocate fuel disruption risk, rather than leaving entitlements for negotiation later or resolution in response to a potential dispute.
If you have any questions about the article, please get in touch with our Construction and Infrastructure Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
