Updated ,first published
When it comes to petrol and diesel, Australia relies on imports for nearly all its needs. It now confronts the prospect of dire economic consequences if the Iran war drags on and supplies run short.
But Australia is not entirely helpless in its predicament. The prime minister’s trip to Singapore this week shows how the nation can leverage its trade and economic heft.
Shipments through the Strait of Hormuz have been shut off since February 28. The blockade is Iran’s major economic weapon in the war, and it continues to use it as the conflict runs through its sixth week.
This means about 20 per cent of global crude oil that Asian refineries rely on to produce petrol and diesel have been held up. Refineries in countries including Japan, Malaysia, South Korea and Singapore, which supply most of Australia’s fuel, have started eating into their stockpiles as their usual supply lines run short.
But these countries are now scouring the globe to find new places to get oil. If they find it, it will probably cost more. And as one of the richest nations in Asia, Australia is well placed to tap into the new supply lines.
Australia is a wealthy nation with deep pockets and has an economy that can absorb high fuel prices for much longer than many neighbours such as Thailand, Vietnam and the Philippines.
While these emerging economies have already kicked off fuel-saving measures such as work-from-home requirements, the federal government is advising Australians they should maintain their typical fuel use, and last week even halved the cost of fuel excise, effectively encouraging people to buy petrol and diesel.
Energy Minister Chris Bowen has created a scheme for the government to underwrite private companies bringing expensive fuel shipments to Australia, and he said on Monday that Australia had secured adequate shipments “well into May”.
A big chunk of Middle Eastern oil supply is shut off, but 80 per cent of global production is unrestricted, and companies in nations such as Nigeria, Senegal, Canada, the United States and Mexico are investigating their options to ramp up oil production to cash in on sky-high prices.
If the strait remains shut, global supplies will continue to tighten in coming weeks. But Australia’s purchasing power means it will be an attractive destination for existing stocks.
Recent reports that Iran is starting to resume shipping through the strait, and charging a toll of $US2 million a ship, emphasises the future for Australia could be one of secure fuel supply with high prices.
Australia can also leverage its own resource exports to boost fuel security via the massive gas industry in Western Australia and Queensland.
Two of the biggest Asian fuel exporters, Japan and Singapore, get about 40 per cent of their gas from Australia; it is critical to their electricity grids.
Anthony Albanese will visit Singapore from Thursday, seeking a deal of mutual assurance on energy trade.
Australia’s gas industry is run by private companies, as are Japanese and Singaporean oil refineries. Moreover, Australia’s gas trade is subject to export control by the federal government, and as the Iran war has shown, energy trade is critical to the global economy.
While Australia has never interfered with gas exports, it is expected that at this time of heightened energy supply risk, assurances between nations of continued reliable trade could be used to secure fuel supply for the coming months.
However, Australia’s potential to escape fuel shortages will eventually hit a brick wall if Iran keeps the strait shut for months to come.
The iron law of arithmetic will dictate that if embargoes persist, global oil demand will outstrip supply and the only response for nations, including Australia, would be cutting demand by rationing fuel use.
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Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
