Australia’s dependence on imported fuel is translating the Middle East conflict into domestic financial lines risk, with directors’ and officers’, trade credit, and professional indemnity policies all exposed to rising pressure, according to Kennedys partner Nicole Wearne. She says disruption in global energy markets is moving from macroeconomic conditions into corporate decision-making, disclosure practices and, ultimately, insurance claims across multiple classes.
In an insight published on April 10, 2026, Wearne said the current situation should not be treated primarily as a traditional war-risk issue for Australian insureds. “As the Middle East conflict continues to disrupt global energy markets, Australian businesses are confronting a familiar threat in an unfamiliar form. This is not a direct war risk in the traditional sense. It is something more insidious, a fuel-driven economic shock that is rapidly cascading into balance sheets, boardrooms, and ultimately insurance claims,” Wearne said.
With about 90% of Australia’s liquid fuel imported, Wearne said price and supply shocks are flowing quickly into local operating costs. Higher diesel prices and volatile freight are compressing margins for transport‑reliant sectors and businesses with limited financial buffer. She said these conditions are already feeding into financial lines exposure. Listed entities dealing with fuel and input cost volatility may have to revise earnings guidance and risk disclosures. In a jurisdiction with an active securities class action environment, any gap between underlying conditions and market communication, or any perceived weakness in risk oversight, can increase the likelihood of D&O claims. She also noted that trade credit insurers face a mix of rising input costs, pressure on working capital, and elevated insolvencies. With more than 11,000 corporate insolvencies reported in 2024, insurers are expected to reassess limits, pricing, and appetite, particularly in sectors where fuel and freight are significant cost components.
On the professional indemnity side, advisers, consultants, and project managers are being asked to structure transactions and forecasts against shifting variables including fuel, construction costs, inflation, and interest rates. Construction cost inflation of more than 30% since 2020 has affected project budgets and timeframes, raising the chance of disputes in which the reasonableness of advice at the time becomes central. Wearne also links the fuel shock to geopolitical and cyber exposures. The Strait of Hormuz, through which roughly 20% of global oil supply passes, remains a key transit route. She said disruption to such a corridor affects energy prices, logistics, and contract performance, with delays and cost overruns pushing some counterparties into financial stress and creating potential triggers for claims. “In short, what begins as a fuel shock quickly becomes a governance challenge,” Wearne said.
Peter Beard, manager, technical services at Insurance Advisernet, has separately outlined how the Strait of Hormuz disruption is affecting Australian insureds and broking practices. In a March 31, 2026, analysis, Beard described how the Feb. 28 strikes by US and Israeli forces on Iran, followed by Iran’s effective closure of Hormuz, reduced commercial traffic through the waterway to near zero. Around 20% of global oil and gas typically transits the strait, and Brent crude futures have moved above US$100, with higher prices in Gulf physical markets. The International Energy Agency has indicated that the scale of the disruption exceeds the combined impact of the 1970s oil shocks. “For your clients, this is not a distant geopolitical event. It is inside their businesses right now, in their diesel bills, freight costs, supply chains, and profitability,” Beard said, as reported by the National Insurance Brokers Association of Australia (NIBA). Beard outlined sector exposures for Australian clients. For marine and cargo, standard Institute Cargo Clauses exclude war and warlike operations, which can leave Gulf‑origin or Gulf‑transiting cargo without cover unless specific war insurance is arranged. War risk premiums have risen three to five times, and some capacity has withdrawn. He said brokers should review open covers and engage with specialist markets early.
In agriculture, Beard referred to diesel shortages reported in regional Queensland, New South Wales, and South Australia, and the temporary federal authorisation of higher‑sulphur fuel. Some machinery breakdown policies, he noted, may exclude damage resulting from non‑approved fuel grades. Rising costs for diesel, steel and plastics mean farm reinstatement values are estimated to sit 15% to 30% below replacement cost, increasing underinsurance risk.
For property and construction, Beard pointed to cost inflation in materials and labour, placing pressure on sums insured where valuations have not kept pace. Strata schemes were cited as particularly exposed. He also highlighted business interruption coverage gaps, with many policies still requiring physical damage rather than supply chain disruption to respond. He said the current conditions amount to a “material change in the risk environment” for many clients and cautioned that broking firms face their own PI exposures if they do not revisit reinstatement values, clarify marine war risk positions, review BI triggers and keep detailed records of advice and client decisions.
At industry level, the Insurance Council of Australia (ICA) has moved to coordinate member responses to cost and supply chain impacts. In an April 1, 2026, announcement, the ICA said its Board Strategy Committee – made up of senior executives from member insurers – has been tasked with managing the evolving effects of the conflict across insurance lines. Its remit includes working with member companies to support consumers seeking hardship assistance under the General Insurance Code of Practice, engaging with government and other sectors on anticipated supply chain disruptions, and issuing communications to small businesses about coverage and premium adjustments. Preliminary ICA data indicates insurers are experiencing cost increases of up to 36% for building materials, up to 30% for trades and on‑site specialists, and up to 50% for freight, driven in part by higher fuel costs. While claims directly attributed to Middle East supply chain disruption have not yet appeared in large numbers, the ICA said it has monitoring systems in place to track any developments.
The Kennedys and NIBA analyses, together with the ICA’s announcement, point to a fuel‑led shock that is now a live driver of financial, operational, and conduct risk for the Australian insurance market. Wearne says boards should test their resilience to extended fuel price volatility, examine concentration and fragility in supply chains, and check that liquidity and disclosure processes can respond to rapid changes. She also says insurers may need to reassess broad conflict‑related exclusions in favour of more granular underwriting of secondary economic effects, expand use of real‑time data and scenario analysis, and develop products addressing non‑damage business interruption and contingent financial loss.
For brokers, Beard’s commentary translates into prioritising high‑exposure parts of their client portfolios, reviewing coverage and values, and maintaining comprehensive documentation to manage PI exposure. For consumer and SME markets, the ICA’s focus on hardship support and coordination with government indicates that cost and delay impacts are expected to reach customer outcomes even before conflict‑linked claims emerge at scale. Although the conflict is geographically distant, its influence on energy prices, supply chains, and corporate performance is now evident in Australian balance sheets and insurance programs. Insurers, boards, and intermediaries face pressure to adjust governance, product design, and client communication as these conditions develop.
