The world’s largest oil supply disruption
The global fuel crisis is now entering its eighth month, with little indication that the disruption to international oil and refined-fuel markets will be resolved in the near future. The International Energy Agency (IEA) has described the Middle East conflict as creating the largest oil supply disruption in the history of the global oil market.
The situation has been compounded by continuing attacks on oil production, refining and transport infrastructure across the Middle East and Russia. The Strait of Hormuz remains severely constrained, Red Sea shipping continues to face security threats, and Ukrainian attacks on Russian refining facilities have further reduced the availability of diesel in international markets. The consequences are being felt well beyond the countries directly involved in these conflicts.
Oil prices remain exceptionally high, while diesel markets are under even greater pressure. Global inventories have been substantially depleted as governments and industry draw upon reserves to maintain supply. Importantly, the IEA’s latest outlook suggests that even with some recovery in oil production, shortages of refined products, particularly diesel, could continue well into 2027. This is no longer a short-term fuel price shock.
Australia’s economy is heavily reliant on diesel
Australia is particularly exposed because of its dependence on imported diesel and the extent to which diesel underpins our major economic activities. Australia is the world’s largest importer of diesel, with imported fuel meeting the overwhelming majority of domestic requirements.
Mining, road freight and logistics, agriculture and construction are among Australia’s major diesel-consuming industries. Diesel powers mining haul trucks and heavy equipment, agricultural machinery, interstate freight transport, earthmoving equipment and much of the nation’s infrastructure construction activity. Consequently, prolonged diesel shortages or sustained price increases have implications far beyond the transport sector. They affect the cost of food production and distribution, construction materials, mining operations, infrastructure development and the delivery of essential services.
Australia’s dependence on imported diesel is therefore an economic resilience issue. It also creates a significant challenge for councils, which depend on many of these same industries to deliver their own services and infrastructure programs.
Council budgets remain under pressure
Councils are already experiencing the consequences of higher petrol and diesel prices through fleet operations, plant and equipment, waste collection, road maintenance, construction and contractor costs. However, the financial implications are becoming more significant as the crisis continues. What may initially have been regarded as a temporary budget variation now risks becoming a structural cost pressure extending across both the 2026/27 and 2027/28 financial years.
For councils operating in rate-capped or otherwise constrained revenue environments, sustained fuel price increases cannot simply be absorbed indefinitely. Higher operating costs reduce the resources available for other services. Higher construction and contractor costs reduce the purchasing power of capital works budgets. Even if fuel prices eventually moderate, councils may continue to experience higher costs as contractors adjust their pricing and projects are repriced.
The challenge for councils goes beyond simply managing this year’s fuel expenditure. It is understanding how prolonged fuel cost escalation will affect their operating budgets, capital works programs and Long-Term Financial Plans.
Councils need to make difficult choices
In our previous Fuel Crisis Update, we argued that councils should prepare for higher fuel costs and potential supply interruptions rather than simply absorb the additional expenditure. That advice is now more relevant than ever. Councils should be modelling the financial impact of sustained high fuel prices through the remainder of 2026/27 and into 2027/28. This modelling should extend beyond council-owned vehicles and plant to include waste contracts, civil works, road construction, freight, materials and other fuel-dependent services.
Importantly, councils should also identify the expenditure and service delivery adjustments that would be required if fuel prices remain elevated or supplies become constrained.
There are three broad responses available.
1. Prioritise services and projects
Councils should review their services and capital works programs to determine which activities are essential, which provide the greatest community benefit and which can reasonably be rescheduled. Priority should be given to public health and safety, essential infrastructure, statutory obligations and services supporting vulnerable members of the community. Capital works should be assessed against their urgency, contractual commitments, financial exposure and consequences of deferral.
2. Reduce service levels and defer projects
Where additional costs cannot be absorbed, councils may need to consider targeted reductions in service levels. This could include reducing mowing and roadside slashing frequencies, consolidating inspections and site visits, adjusting maintenance schedules, reducing non-essential vehicle travel and reviewing the frequency of other fuel-intensive activities. Similarly, lower-priority capital works may need to be deferred until costs and supply conditions become more manageable. These decisions should be informed by financial modelling that identifies the savings, operational implications and community consequences of each option.
3. Suspend or cancel services and projects
If the crisis persists or fuel supplies become severely constrained, councils may need to consider more substantial expenditure reductions. This could include temporarily suspending discretionary services, cancelling lower-priority projects or withdrawing activities that can no longer be delivered sustainably. These should not be arbitrary across-the-board cuts. Decisions should reflect statutory obligations, community needs, service risks, contractual liabilities and the longer-term costs of withdrawing or deferring services.
Preparing for fuel rationing
The possibility of prolonged diesel shortages introduces another consideration: continuity of essential council services. Councils should not assume that unrestricted access to petrol and diesel will continue under every possible scenario.
Business Continuity Plans should identify the minimum fuel required to maintain essential services, including waste collection, emergency response, critical infrastructure maintenance and other public health and safety activities.
Councils should establish priorities for allocating available fuel to vehicles, plant and contractors and determine which services could operate at reduced levels or be temporarily suspended. The objective is to ensure that difficult decisions are considered and agreed before a fuel shortage occurs.
Reducing exposure through electrification
While immediate financial and service delivery responses are necessary, the current crisis also reinforces the importance of reducing councils’ longer-term dependence on imported fossil fuels. Electrifying suitable passenger vehicles, utilities, vans, trucks and plant can progressively reduce exposure to petrol and diesel price volatility. Integrating charging infrastructure with rooftop solar generation and battery storage offers further opportunities to reduce energy costs and strengthen operational resilience.
Not every council vehicle or item of plant can currently be electrified. Diesel will remain essential for many heavy-duty and specialised operations. However, reducing fuel consumption wherever practical preserves diesel for those services that have limited alternatives.
Councils cannot afford to wait
The global fuel crisis is unlikely to be resolved quickly. Even under an improving supply outlook, diesel markets may remain constrained well into 2027. For councils, this means the financial and operational consequences could extend across multiple budgets and financial planning cycles.
Councils need to move beyond monitoring fuel prices and begin making informed decisions about expenditure priorities, service levels and the sustainability of their capital works programs. That requires robust financial modelling, service prioritisation, business continuity planning and a willingness to reconsider how resources are allocated.
The choices may be difficult. However, proactively reviewing services and projects provides councils with considerably more control than waiting until escalating costs or fuel shortages force immediate decisions.
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