Malaysia: A Construction Overview

On 28 February 2026, the United States and Israel launched co-ordinated airstrikes against Iran. Iran responded with retaliatory missile and drone attacks on United States military bases, Israel, and certain Arab countries in the Middle East. The situation escalated further with the closure of the Strait of Hormuz, significantly disrupting global trade, particularly in oil and gas.

Fuel is a critical input in the construction industry, underpinning the operation of heavy machinery, such as cranes, excavators, and piling rigs, as well as the transportation of materials. Given the industry’s heavy reliance on fuel, disruptions to global oil and gas supply inevitably have a direct impact on construction activities.

In the immediate aftermath, Brent crude oil prices surged by more than 30%, reaching approximately USD100 per barrel. While Malaysia operates a fuel subsidy regime, its application to the construction sector is limited. Existing subsidy programmes, namely BUDI Individu (for individuals), BUDI Agri-Komoditi (for small farmers and smallholders), and BUDI MySubsidi Diesel (for land transportation), do not meaningfully extend to construction activities. Construction heavy machinery is not eligible for subsidised fuel, and even where certain transport activities may arguably qualify depending on vehicle classification, key logistics vehicles such as concrete mixer trucks are generally excluded. As such, the construction sector remains largely exposed to fuel price volatility without meaningful subsidy protection.

At present, there is no immediate indication of fuel shortages in Malaysia. However, should the conflict persist and global supply chains remain disrupted, it is reasonably foreseeable that fuel supply may come under strain, with existing reserves potentially only sufficient until around June 2026. Any prolonged disruption would not only increase operational costs but may also affect project timelines due to logistical delays and resource constraints.

Against this backdrop, the key issue for industry players is how ongoing projects should be managed under existing contractual arrangements, and more particularly whether parties may be entitled to contractual relief in respect of time, costs, or, in more extreme cases, termination.

When considering applications for extensions of time, including in respect of those necessitated by events occurring in the Middle East, it is vital for both employers and contractors to keep in mind the leading Malaysian authorities governing the making and assessment of applications for extensions of time. One key authority is the Court of Appeal case of Yuk Tung Construction Sdn Bhd v Daya Cmt Sdn Bhd and another appeal [2020] 1 LNS 1314, which makes clear that a contractor must make a contemporaneous claim for time under the contractual extension of time (EOT) mechanism, rather than simply reserving its rights and making its claim in subsequent litigation.

Additionally, the contractor’s right to be compensated for cost fluctuations due to the Middle East conflict is dependent upon the inclusion of the relevant contractual terms in their construction contract. One example of such a term can be found at Clause 13.8 of the FIDIC Red Book 1999, which allows adjustments for changes in costs. It must be noted, however, that certain standard forms of contract do not provide for such adjustments to be claimed, including the popular PAM Form of Contract in Malaysia (2018).

Finally, parties may be considering invoking the principle of force majeure, in view of the delays and cost impact arising from the Middle East conflict. Ultimately, the scope of the parties’ rights with respect to force majeure depends on the corresponding provisions under their contract. Some forms, such as the PAM Form 2018, allow force majeure only to be invoked in respect of delay/extensions of time, whereas a more permissive form such as the FIDIC Red Book 1999 allows contractors to make claims arising from force majeure in respect of both time and costs, as well as allowing for a termination of the contract if the force majeure event persists over a prolonged period. However, parties ought to be cautious when invoking force majeure due to the narrow definition applied by the Malaysian Courts, as seen in the case of Global Destar (M) Sdn Bhd v Kuala Lumpur Glass Manufacturers Co. Sdn Bhd [2007] MLJU 91, where it was held that force majeure does not extend to “condition of business or economic climate such as a depressed economy”. As such, the parties would need to demonstrate that the force majeure event indeed arises directly from the Middle East conflict itself, rather than any economic or political circumstances arising indirectly from the conflict