Anxiety around fuel supplies and the cost of filling up at the servo has been growing. 

Drivers, farmers, truckies, and essential service workers are all facing new challenges and concerns. 

This week I asked the TDA audience to send in their biggest questions about fuel. I then shared their queries with some leading experts in economic and foreign policy to find the answers.

Here’s what they told me.

The Strait of Hormuz is a 33-kilometre-wide shipping lane off the southern border of Iran.

Prior to the conflict, around 20-25% of the world’s oil and liquefied natural gas (used to heat homes and generate electricity) was shipped through the Strait daily. However, the vital passage has been almost completely cut off by Iran since 28 February.

University of Sydney Associate Professor of Economics David Ubilava said its “unlikely” the Strait will be closed for several months, but he noted that disruption would “become a norm”.

When the Strait reopens, Ubilava said adjustments would “prolong the fall-out of the shock”.

He explained a “rocks-and-feathers” dynamic, where prices increase quickly (such as what we’ve seen with fuel), but decrease slowly.

“Markets are slow to re-adjust once the root cause of the shock is removed,” Ubilava said.

ANU Centre for Arab and Islamic Studies Senior Lecturer Dr Jessie Moritz said that even if the conflict ended tomorrow, “it would still take months to rebuild damaged energy infrastructure and restore regular output volumes”.

This includes oil, gas, aluminium, helium and petrochemicals produced and shipped in the region.

“Fuel prices might stop escalating and fall a bit - but not back to pre-war levels until supply fully returns,” she said.

The answer to this one is directly linked to the previous question.

University of Sydney Associate Professor of American Politics and Foreign Policy David Smith believes “backlogs” and “unblock[ing] supply chains” will delay prices going down.

“The big fear is that the longer this goes on... getting everything back to normal will take even longer.”

“There is even the possibility that things could get permanently more expensive,” Smith added.

Explaining how these costs could stay more expensive, Smith raised the risk of these events recurring as a key driver.

“Now that we know Iran can attack shipping [in] the Straits of Hormuz like this, with the effect of shutting it down completely, this will remain a possibility that oil companies, shipping companies, governments and (perhaps most importantly) insurance underwriters need to consider,” he said.

In South East Asia, some countries have issued work-from-home orders, and instructed government agencies to reduce their energy and fuel consumption.

New Zealand has announced $NZ50 ($AU41) weekly payments to 143,000 lower-income families with children for one year, or until fuel prices decrease.

In Ireland, the Government will reduce a tax on fuel and increase diesel rebates for businesses.

Comparing Australia’s preparedness with the rest of the world, Dr Moritz said: “Australia has never actually met its obligations as an International Energy Agency (IEA) member to hold 90 days worth of fuel stocks.”

Most countries have a fuel excise or equivalent tax – a levy charged on fuel for transportation.

In Australia, the rate is 52.6 cents per litre. (The fuel excise is technically paid by the manufacturers, but they ‘pass it on’ to the customer).

Some state MPs in NSW, Victoria and Tasmania have asked the Government to cut the fuel excise. On Friday, Opposition Leader Angus Taylor suggested the Government halve the fuel excise.

“That will mean 26 cents a litre off at the bowser... We have proposed a fully-funded package that will not put pressure on inflation,” Taylor said.

Prime Minister Anthony Albanese didn’t directly address the issue when asked about Taylor’s proposal, instead telling reporters: “My Government has always been strong on cost of living measures... We do so in a responsible way in the context of our budget considerations.”

Australian Security Leaders Climate Group (ASLCG) executive, Neil Greet, said that while Australia does have these resources, it was determined decades ago that it was “uneconomic to continue domestic oil production and refining.”

“Even if we turned around today and said we wanted to recreate a domestic oil capability… it will still take a decade at least to deliver anything worthwhile,” he said.

Fellow ASLCG executive, John Blackburn echoed these sentiments, saying “the resources exist,” but there are no policies or systems in place to allow for Australia to be self-sufficient in this area.

Blackburn said this is “precisely the gap now being exposed.”

Every expert was in agreement that this idea is not realistic, with Dr Moritz calling it “not logistically feasible”.

Largely, this is because ships can transport significantly higher volumes of oil than trucks.

The “average oil tanker carries two million barrels of oil, whereas an average fuel truck carries roughly 190 to 275 barrels,” Greet explained.

“Therefore, it takes 70,000 equivalent truck trips to equal one average tanker.”

He also questioned the safety of truck transportation, saying that “Iran can easily target a road with drone[s] and missiles.”

There are smaller shipping pipelines in the region that bypass the Strait, such as the UAE's Habshan-Fujairah pipeline, but these options can’t handle the kind of traffic typically seen in the Strait of Hormuz. 

Associate Professor Smith called the comparison “really interesting”.

“Unlike in COVID, there aren’t a lot of measures that we can all take to do something about it (remember social distancing, hand-washing, vaccination), although we may be headed for a return to remote working,” he said.

Smith added: “There’s not a lot we can actually do, as ordinary citizens, except wait for the conflict to resolve.”

Greet also noted the similarities around both situations, where anxiety has driven people’s decisions.

“Our behaviour now may include some panic buying but it is rooted in reality of the uncertainty of the situation,” he said. “We didn't have to import toilet paper.”

As we navigate the flow-on effects of the conflict here in Australia, I wanted to finish with some important perspective from Greet, who told me: “Many innocent people” are suffering “beyond what most Australians have ever experienced and hopefully never will.”

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