Updated ,first published
When it comes to petrol and diesel, Australia relies on imports for almost all of its needs. It now faces the prospect of dire economic consequences if the Iran war continues and supplies are cut.
But Australia is not entirely helpless in its predicament. The the prime minister’s trip to Singapore this week shows how the nation can raise itself commercially and economically.
Shipping through the Strait of Hormuz has been closed since February 28. The sanctions are Iran’s main economic weapon in the war, and they continue to use them as the conflict enters its sixth week.
This means that about 20 percent of the world’s crude oil that Asian refineries depend on to produce gasoline and diesel has been stopped. Refineries in countries including Japan, Malaysia, South Korea and Singapore, which supply most of Australia’s oil, have begun to eat into their reserves as their usual supply routes shrink.
But these countries are now moving around the world in search of new oil fields. If they get it, it will probably cost more. And as one of the wealthiest nations in Asia, Australia is well positioned to find new distribution channels.
Australia is a wealthy nation with deep pockets and an economy that can absorb higher oil prices for longer than many of its neighbors such as Thailand, Vietnam and the Philippines.
Although these emerging economies have already introduced fuel-saving measures such as work-at-home requirements, the federal government is advising Australians to maintain their normal fuel consumption, and last week even halved the cost of fuel tax, encouraging people to buy petrol and diesel.
Energy Minister Chris Bowen has drawn up a plan for the government to register private companies bringing expensive oil shipments to Australia, and said on Monday that Australia had enough supplies “until May”.
Much of the Middle East’s oil supply is blocked, but 80 percent of global production is unrestricted, and companies in countries such as Nigeria, Senegal, Canada, the United States and Mexico are exploring their options to increase oil production to cash in on higher prices.
If the channel continues to close, international supplies will continue to tighten in the coming weeks. But Australia’s buying power means it will be an attractive destination for existing stocks.
Recent reports that Iran is resuming shipping through the strait, and imposing tariffs of $2 million on ships, underscore Australia’s future may be one of secure oil supplies and high prices.
Australia can also increase exports of its resources to increase fuel security through the large gas industry in Western Australia and Queensland.
Asia’s two biggest oil exporters, Japan and Singapore, get about 40 percent of their gas from Australia; it is important to their power grids.
Anthony Albanese will visit Singapore from Thursday, seeking a deal to secure energy trade.
Australia’s gas industry is run by private companies, as are the refineries of Japan and Singapore. Furthermore, Australia’s gas trade is subject to export controls by the federal government, and as the Iran war has shown, the energy trade is vital to the global economy.
Although Australia has never interfered with gas exports, it is hoped that at this time of great energy supply risk, the inter-state guarantee of reliable business continuity can be used to secure oil supplies for the coming months.
However, Australia’s chances of avoiding an oil shortage will eventually hit a brick wall if Iran closes the strait for months to come.
The iron law of calculation will dictate that if sanctions continue, international oil demand will outstrip supply and the only response for nations, including Australia, will be to reduce demand by rationing oil consumption.
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Mike Foley is the climate and energy columnist for The Age and The Sydney Morning Herald.Connect through email address.
