Chris Hodgson, Director of Advisory at Propello Procurement, looks at the supply chain impacts and contract variations that procurement teams across Australia are currently navigating. This article was published on the Procurement and Supply Australasia (PASA) website on 14 April 2026.
Propello will be delivering a free webinar titled Managing price increases in volatile times, to explore this topic further on 23 April 2026.
If your inbox hasn’t received a supplier price increase request yet, it probably will soon. And it may not stop at fuel.
The Strait of Hormuz has been effectively closed for six weeks. What began as an energy market shock has become something more systemic: a simultaneous disruption to at least ten supply chains that underpin operational contracts across every sector of the Australian economy.
Fuel-intensive services, such as transport and logistics, waste collection, grounds maintenance and road services, were first. But the wave of price increase requests now heading towards procurement teams spans plastics and packaging, cleaning and industrial chemicals, construction materials and agricultural inputs.
The IEA has called this the “largest supply disruption in the history of the global oil market”. The procurement challenge is to respond with discipline, not panic.
Beyond fuel, the Strait closure is disrupting supply chains that most procurement teams have never had to actively manage:
• Fertilisers and agricultural inputs: The Gulf supplies 46 percent of globally traded urea. Prices at the US benchmark hub surged 32 percent in a single week. For organisations with grounds maintenance, landscaping or agriculture-related contracts, input cost pressure is already materialising.
• Petrochemicals and plastics: Around 85 percent of Middle East polyethylene exports transit Hormuz. Packaging costs, plastic components and synthetic materials are all under pressure. A third of global seaborne methanol trade, a feedstock for resins, coatings and cleaning compounds also transits through the Strait.
• Metals: The Gulf produces approximately 9 percent of global primary aluminium. Over 150,000 tonnes registered on the London Metal Exchange have already been withdrawn from warehouses. Construction, fit-out and infrastructure procurement teams are beginning to see surcharges from fabricators and service contractors.
• Chemicals and packaging inputs: Monoethylene glycol (MEG), a key input for polyester fibres and PET packaging, is one of the Gulf’s largest chemical exports. Health and commercial organisations with packaging-intensive procurement should audit their Tier-2 supplier exposure.
• Helium: Qatar supplies approximately one-third of global helium, a byproduct of its natural gas processing. Healthcare organisations should note that MRI scanner operations depend on liquid helium supply. This is not a theoretical risk; allocation concerns have already been flagged across health systems internationally.
Not every organisation is exposed to all of these. But most are exposed to more than they realise, because the exposure often sits at Tier-2 and Tier-3 of a service contract, not on the face of it.
The most important thing to understand before responding to any increase request is that a commodity price spike does not translate proportionally into a contract cost increase.
For fuel, the maths is straightforward. The average diesel Terminal Gate Price (TGP) for Australia in March 2026 was 249.4 cents per litre (cpl), up from the February 2026 average of 162.9 cpl, a 53 percent increase.
Applied only to the fuel component of a service contract, with fuel 15-17 percent of total operating cost and labour, equipment, maintenance and overheads making up the rest, that genuine additional cost translates to approximately 8-9 percent of total contract value. Significant, but materially below the headline movements some suppliers cite.
The same logic applies across every other category. If a cleaning chemical supplier quotes a 35 percent price increase on the basis of methanol input costs, ask what percentage of their total production cost methanol actually represents. If a construction contractor cites aluminium surcharges, calculate what proportion of the total contract value is genuinely aluminium-intensive.
The discipline is the same regardless of input type. Verify the commodity movement independently against a published source, identify the genuine proportion of total cost it represents and calculate the defensible dollar impact yourself before responding.
For fuel, there is important baseline context. The FY25 average TGP was 167.5 cpl, which was 10 percent below the FY24 average of 186.3 cpl. FY26 average TGP to the end of February 2026 was 166.1 cpl, 12 percent below FY24. Contracts priced in FY24 were paying 10-12 percent less for diesel right up until 2 March 2026. The cost shock is real and concentrated, average TGP since 2 March 2026 is 264.5 cpl, any agreed adjustment should apply from that date only.
The same asymmetry question is worth asking in other categories. Was your supplier actively passing on input cost reductions when commodity prices were lower in 2024 and 2025? In most cases, no.
That is not inherently bad faith; commodity risk sits somewhere in every contract, but it is relevant context when deciding how to respond to a claim arriving the moment prices move in the other direction.
Before negotiating anything, read the contract. Does it contain a price variation clause? If so, what are the exact conditions: the required trigger index, the threshold the price movement must exceed, the prescribed notice period?
Many contracts require the contractor to submit any variation request within 14-21 days of the triggering event. A claim submitted weeks after the fact may have no contractual standing, regardless of how genuine the underlying cost pressure is.
If the contract is silent on price variation, you have no obligation to agree to any increase. That doesn’t mean you should automatically refuse, as supplier relationships and service continuity are real considerations, but the contractor is requesting anex-gratia adjustment, not enforcing a right. That is a meaningfully different conversation and one where your organisation holds significantly more leverage.
Whether or not your contract has a variation clause, the discipline is the same. Start by validating the claim:
• confirm the clause conditions were met
• check any notice period was satisfied
• request written evidence rather than estimates
• verify the price movement independently against a published source
• calculate the defensible dollar impact yourself.
For fuel, the Australian Institute of Petroleum (AIP) TGP series is an appropriate verification reference. It is publicly available and supplier neutral. For other commodity inputs, ask the supplier to provide upstream invoices or price notices from their suppliers. Independent verification is always possible, it simply requires identifying the right reference source foreach input type.
Once the claim is validated, structure the response with equal discipline:
• make any adjustment time-limited
• back-date it only to the date the disruption commenced
• tie it directly to a named and publicly available index
• make it symmetric so it applies in both directions
• set a mandatory review date.
Do not embed a permanent price increase in a new schedule of rates. Obtain the appropriate internal delegation approval and confirm the agreed position in writing.
Do not agree verbally and document later. Your records are your protection, both against overpaying a legitimate claim and against future audit scrutiny.
The Strait of Hormuz remains effectively closed, with disruption now extending beyond the initial shock phase. Diplomatic efforts have yet to deliver a resolution and conditions remain unstable, with the risk of further escalation still present.
For procurement teams, the key point is not the day-to-day developments, but the operating environment this has created: constrained supply, disrupted trade flows and sustained volatility across multiple commodity markets.
Australian diesel TGP: 318.8 cpl as of 10 April 2026 (AIP published data), up from 162.9 cpl in February 2026.
Australia imports over 90 percent of its refined fuel and holds an estimated 34 days of diesel reserve, well below the IEA’s 90-day standard.
This combination of supply disruption and structural exposure means there is no credible path to a rapid return to pre-crisis pricing. Elevated input costs across fuel, plastics, chemicals and metals should now be treated as a structural planning assumption, not a short-term spike.
Organisations that entered this crisis with robust price variation clauses, indexed to a published commodity series, with clear thresholds, symmetry requirements and defined notice periods, are navigating it with clarity. Those without them are making ad hoc decisions under pressure, without a shared set of rules.
This moment is a prompt to review your contract portfolio through a new lens. Identify which of your contracts carry the highest input-cost concentration risk, not just fuel, butchemicals, plastics, metals and agricultural inputs.
For contracts approaching renewal, the key terms to include for any input-intensive service are:
• A named trigger index for each relevant commodity input (AIP TGP series for fuel; an equivalent published reference for other inputs)
• A 12-month base period average established and agreed at contract commencement
• A movement threshold of ±10 percent before the mechanism activates
• A symmetric calculation that applies in both directions, up and down
• A mandatory review date, typically annually
• A notice period requirement, typically 21 days from the end of the quarter in which the threshold was triggered. This is the most commonly omitted element and the one that would have protected many organisations from the claims now arriving.
Propello Procurement works with organisations across Australia and New Zealand to build this kind of contractual rigour into service contracts from the start. We also offer in-house and open training in Contract Management.
If you’d like to review your current contract exposure or access our price variation clause templates, reach out to the Propello team.
Australian diesel TGP: Australian Institute of Petroleum (AIP) daily data and BP Australia published TGP data. TGP is the average wholesale price for bulk diesel purchase at Australian terminals, inclusive of GST, averaged across BP, Ampol, ExxonMobil and Viva Energy.
Key TGP figures: FY24 annual average: 186.3 cpl. FY25 annual average: 167.5 cpl. February 2026: 162.9 cpl. 10 April 2026: 318.8 cpl (AIP published data).
Supply chain research: Atlantic Council (March 2026); World Economic Forum (April 2026); Dallas Federal Reserve Bank (March 2026); Kiel Institute Policy Brief No. 206 (March 2026); SolAbility Economic Impact Analysis (March 2026); UNCTAD Strait of Hormuz Disruptions Report (March 2026); Drewry Maritime Research; Benchmark Minerals Intelligence.
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