Australia has deep pockets to shield it from the Strait of Hormuz global oil problem
Updated ,first published
When it comes to gasoline and diesel, Australia relies on imports for almost all its needs. Now Iran faces the possibility of serious economic consequences if the war is prolonged and supply decreases.
But Australia is not completely helpless in its plight. The Prime Minister’s visit to Singapore this week shows how the country can pull its trade and economic weight.
Shipments via the Strait of Hormuz have been stopped since February 28. The blockade is Iran’s biggest economic weapon in the war, and it continues to use it into the sixth week of the conflict.
This means around 20 percent of global crude used by Asian refineries to produce petrol and diesel has been halted. Refineries in countries such as Japan, Malaysia, South Korea and Singapore, which supply most of Australia’s fuel, have begun to run out of stock as their usual supply lines become shorter.
However, these countries are now scanning the world to find new places to obtain oil. If they find it, it will probably cost more. And Australia, one of Asia’s richest countries, is well positioned to benefit from new supply lines.
Australia is a rich country and has an economy that can absorb high fuel prices for much longer than many of its neighbors such as Thailand, Vietnam and the Philippines.
While these emerging economies have already introduced fuel-saving measures such as work-from-home requirements, the federal government is advising Australians to maintain their typical fuel usage and even halved the cost of fuel consumption last week, effectively encouraging people to buy petrol and diesel.
Energy Minister Chris Bowen has laid out a plan for the government to provide insurance to private companies bringing shipments of expensive fuel into Australia, saying on Monday Australia had secured sufficient shipments “by May”.
Much of the oil supply in the Middle East has been cut off, but 80 percent of global production is unrestricted and companies in countries such as Nigeria, Senegal, Canada, the United States and Mexico are exploring options to increase oil production to profit from higher prices.
If the strait remains closed, global supply will continue to shrink in the coming weeks. But Australia’s purchasing power means it will be an attractive destination for existing stock.
Recent reports that Iran has begun resuming shipping through the strait and is charging US$2 million per ship highlight that Australia’s future may be secure fuel supplies at high prices.
Australia can also use its resource exports to improve fuel security through the huge gas industry in Western Australia and Queensland.
Japan and Singapore, two of Asia’s biggest fuel exporters, get about 40 percent of their gas from Australia; It is of critical importance for electrical networks.
Anthony Albanese will visit Singapore from Thursday to secure a mutual assurance agreement on energy trade.
Australia’s gas industry is dominated by private companies such as the Japanese and Singaporean oil refineries. Moreover, Australia’s gas trade is subject to federal government export control and, as the Iran war demonstrates, energy trade is critical to the global economy.
Although Australia has never intervened in gas exports, it is expected that assurances of continued reliable trade between the countries could be used to secure fuel supplies in the coming months, at a time when energy supply risks are increasing.
But if Iran keeps the strait closed for months to come, Australia’s potential to escape fuel shortages will eventually hit a wall.
The iron law of arithmetic will dictate that if embargoes continue, global oil demand will exceed supply and the only response for countries, including Australia, will be to reduce 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.
