Fuel prices in Australia are back to prewar levels. Will it last?

Australian fuel prices have returned to levels not seen since the start of the Iran war four months ago, providing motorists with much-needed relief as sharp declines in global oil costs continue to flow into local service stations.

New price data reveals average unleaded petrol prices in Sydney and Melbourne have fallen below $1.56 per litre, while diesel has fallen below $1.78 per litre. This marks the cheapest fuel since late February, when Iran began blocking crude oil tankers from leaving the Persian Gulf, causing massive increases in fuel costs and triggering a global energy crisis.

Fuel prices have fallen to their lowest levels since the start of the war in Iran.Steven Siewart.

At today’s prices, gasoline and diesel are nearly 40 percent cheaper than at the height of the conflict, when unleaded fuel hit a record high of $2.53 per liter and diesel $3.19. Prices began to ease following a preliminary ceasefire and progress toward reopening the Strait of Hormuz, a vital maritime choke point off Iran’s southern coast that handles 20 percent of global oil trade.

However, prices at the pump cannot remain at these low levels for long. From Wednesday, motorists face a 16 cent per liter increase when the Albanian government reintroduces fuel tax by half.

Global oil markets also remain tense following the flare-up of hostilities in the Middle East, which could cause prices to rise again. Iran announced Sunday that it had launched attacks on American targets in Bahrain and Kuwait, raising questions about the status of ongoing negotiations to reach a final peace deal.

Still, experts say sharp declines in gasoline and diesel prices this month provide a critical economic buffer to soften the impact of Australia’s partial reintroduction of fuel taxes. The ongoing declines in Asian oil and refined fuel indicators, which directly affect local fuel costs, also increase the likelihood of deeper price cuts.

Tapis crude, the main oil benchmark used in the Asia-Pacific, has fallen more than 20 percent in the past two weeks alone and is now trading at $76 a barrel; This is almost the same as in February before the war started.

Peter Khoury, a spokesman for the National Association of Highways and Motorists, said fuel will remain at “relatively affordable” levels of less than $1.70 per liter for unleaded fuel and less than $2 for diesel, despite the addition of another 16 cents per liter on Wednesday.

“These are not levels where prices will get too high and people will start changing their behavior,” he said. “We are in a better place than before”

But he warned that “things could change at any time” as ongoing hostilities threaten to undermine talks to end the war. “We don’t know what the back end of this is going to look like or how long it’s going to take,” he said.

KPMG chief economist Brendan Rynne said even if bowser prices did not rise significantly from here, the economic effects of the fuel price shock experienced in Australia in March and April would continue. Second-round inflation effects (the delayed consequences of higher gasoline and diesel prices) have begun to show up in rising food and agriculture costs and the costs of petroleum derivatives such as plastic packaging.

“From an inflation perspective, we are now starting to see secondary effects reflecting higher input costs from a few months ago,” Rynne said.

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