Iran war has Canadian builders eager to pivot from diesel

Skyrocketing gas prices and ongoing hostilities in Iran have builders hurting at the pump.

Following the escalation of the Iran-U.S. conflict, Canadian fuel markets experienced a historic shock, with gasoline prices seeing a record-breaking 21.2% monthly jump in March alone. The closure of the Strait of Hormuz on March 4—a critical chokepoint for 20% of global oil—sent Brent Crude soaring past $120 per barrel.

Regular gas rose by roughly 51 cents per litre since late February. Diesel was hit even harder, surging by 74 cents per litre as refineries struggled with supply chain disruptions.

This is bad news for builders. The Canadian construction sector is one of the country’s most diesel-intensive industries. According to Natural Resources Canada (NRCan) and Statistics Canada, in 2023, the construction sector used approximately 1.72 billion litres. And its use is going up. Preliminary data for 2024 suggests a slight increase in consumption of about 0.8%, driven by large-scale infrastructure projects and post-pandemic recovery in engineering construction.

Diesel is the lifeblood of the industry, accounting for nearly 70% of all energy used on construction sites. It is followed by natural gas (roughly 24%) and gasoline (roughly 6%), which are primarily used for space heating and light-duty vehicles, respectively.

Heavy burden

One of the most fuel intensive sectors of the industry, heavy civil work, is highly impacted.

Steven Crombie, Senior Director-Public Affairs, Ontario Road Builders Association, explained that the industry is extremely fuel-intensive not just on-site with the use of heavy equipment, but across the entire supply chain. 

“The production of asphalt, the processing of aggregates, and the manufacturing of precast concrete products all rely heavily on diesel and other fuel inputs,” he said. “When fuel prices rise, the impact is felt at every stage of project delivery.”

Matt Pitcairn, President of the BC Roadbuilders and Heavy Construction Association, added that remote projects are especially exposed due to added logistics costs.

How can builders adjust? According to Crombie, it’s possible in the near term, but there are limited options. 

“The reality is that our construction and manufacturing systems are built on over a century of infrastructure designed around gas and diesel,” he said. “These are not processes that can be quickly or easily substituted.”

He noted that  while efficiency improvements can help at the margins, there is no immediate replacement that materially reduces exposure to fuel price volatility. Simply put, higher prices mean cost escalation. As fuel prices rise, the cost of operating equipment, transporting materials, and producing key inputs all increase. 

“That pressure moves through the supply chain and ultimately shows up in project pricing,” he said. “Without appropriate contract mechanisms, it can also create risk for contractors who are pricing work in an uncertain environment.”

Pitcairn noted some things firms can do are consider how they can address better fuel management, reducing idle time, optimizing haul distances, and using contract escalation clauses.

“Higher gas and diesel prices ultimately mean higher costs and tighter margins on fixed-price work,” he said. “You may see fewer bidders, higher bids, or more pressure to include escalation provisions.”

Tax holiday

In response to the 2026 fuel crisis, Prime Minister Mark Carney implemented a temporary suspension of the federal fuel excise tax, effective from April 20 to September 7, 2026. This “gas tax holiday” effectively removes 10 cents per litre from the price of regular gasoline and 4 cents per litre from diesel.

While Crombie and Pitcairn welcomed the relief they noted that the issues is much larger. 

“With both consumers and industries facing ongoing cost pressures, any measure that helps reduce input costs is positive. While a 10-cent reduction in gasoline and 4 cents in diesel won’t fundamentally change project economics, it does help ease some of the immediate pressure being felt across the system,” said Crombie. 

Pitcairn stated that while the federal fuel excise tax pause will provide some short-term relief, especially for diesel users,  it does not address the “underlying global volatility” driving fuel prices.

Powering up

Why haven’t builders switched to electric options to mitigate fuel cost volatility? The technology and infrastructure haven’t progressed far enough. 

“While there is progress being made, the overwhelming majority of construction equipment and the industrial processes that support the sector are still dependent on fossil fuels,” explained Crombie. “The infrastructure simply isn’t in place yet for alternatives to meaningfully offset fuel-related cost risks at scale.”

Pitcairn stated that while higher fuel prices accelerate interest in alternative fuels/equipment, adoption is still limited. 

“Electric equipment works in some use cases, but it is not yet a full substitute for heavy, high-demand operations, especially in remote areas,” he said. 

Diesel is incredibly energy dense, can be transported to in remote locations for easy refuelling. Alternatively, infrastructure isn’t set up to recharge battery technology everywhere, and the technology can struggle in Canada’s extreme cold. 

Planning the exit

The industry’s reliance on diesel hasn’t gone unnoticed by Canada’s biggest general contractors, who are crafting a plan to significantly curb fossil fuel usage. Aecon, Bird, Chandos, EllisDon, Graham, Ledcor, Multiplex, PCL, and Pomerleau crunched operational data from 617 projects. 

They found diesel fuel currently dominates construction emissions, accounting for 65% of a typical project’s carbon footprint. They believe that by targeting diesel use through electrification and renewable alternatives, the sector can meet aggressive climate targets while lowering maintenance and fuel costs.

According to the study, the transition to next-generation heavy equipment involves adopting electric, hybrid, and hydrogen solutions, with compact electric excavators and loaders already commercially viable for urban projects. Hybrid systems provide a near-term “stepping stone” by reducing fuel consumption by 20–40% while avoiding the range limitations of full electrification.

However, the adoption of larger electric machinery and hydrogen-powered long-haul vehicles is hindered by high upfront costs—often 40–100% higher than diesel—along with inadequate charging infrastructure and reduced battery performance in cold climates. 

Despite these challenges, researchers found that emerging battery-powered cranes and telehandlers are beginning to offer performance levels that rival their diesel counterparts. Their plan also is optimistic that in the coming 15 years, electric equipment technology will make significant progress.