Domestic fuel stocks: Middle East fighting sparks new oil, gas supply threat
Tensions in the Middle East have opened the door for an extension of fuel excise cuts beyond August 2. Picture by Mark Jesser. Australia's fuel security planning may be facing its biggest test in decades as. . .
Tensions in the Middle East have opened the door for an extension of fuel excise cuts beyond August 2. Picture by Mark Jesser. Australia's fuel security planning may be facing its biggest test in decades as renewed fighting in the Middle East raises the prospect that restrictions through the Strait of Hormuz are no longer a short-term disruption but the beginning of a prolonged geopolitical standoff. Subscribe now for unlimited accessto all our agricultural newsacross the nationor signup to continue readingAll articles from our website& appThe digital version ofThis Week'sPaperOur entirenetworkFighting resumed between Iran and joint US-Israel forces late last week after a month-long ceasefire, with Iranian officials openly signalling an intention to exert greater ongoing control over commercial shipping through the waterway. According to real-time tracking available online, there have been only 12 transits of the Strait of Hormuz in the last day or so while the normal pre-conflict average saw between 60 and 138 daily crossings. The Strait carries about one-fifth of the world's oil trade and a significant share of global liquefied natural gas exports. While Australia imports fuel from a range of suppliers, the interconnected nature of global markets means disruptions anywhere quickly impact prices and availability everywhere. The first Hormuz closure in March and April tested Australia's ability to source fuel from alternative suppliers. The continuing challenge for policymakers is that the nation's fuel security depends not only on domestic stockpiles, but that it remains heavily reliant on shipping trade siphoning off surplus fuel from somewhere in the global trading system with limited inventories. Acting Energy Minister Jason Clare said the worsening conflict had forced the government to consider extending its fuel tax relief measures, under which motorists are receiving a 16 cents a litre discount, beyond the August 2 expiry. The decision will come down to whether fuel prices increase and international supply conditions constrict in the next two weeks. "Even though there are bombs dropping on the other side of the world it is having an impact on Aussies here and now," he said. The government's decision last month to draw a line through the discount on August 2 is a clear indication that it believed the ceasefire would likely hold and Australia's exposure was easing. Australia currently holds about 41 days of petrol, 37 days of diesel and 33 days of jet fuel reserves, more than the 36 days of petrol, 30 days of diesel and 29 days of aviation fuel held before the Iranian conflict began in late February. However, the increase has largely been due to the government introducing a costly and temporary measure of underwriting spot-market purchases through Export Finance Australia. The government has also secured alternative supply arrangements in recent months, including expanding sourcing from northern hemisphere markets, like the United States and Argentina, as traditional supply chains through Asia have come under pressure. Australia's fuel reserves also remain well short of the International Energy Agency's 90-day benchmark and a fraction of economically-comparable countries such as Japan and South Korea, which currently hold 200 to 250 days and 205 to 210 days respectively. A lengthy closure of the Strait would be concerning Canberra given Asian refineries would likely become further constrained as those nations would build larger domestic stockpiles. A recent Wall Street Journal report also raised concerns about the level of American strategic petroleum reserves, which it said were at their lowest levels since 1983, and the country's preparedness for renewed disruptions following the breakdown of the ceasefire. In the weeks between that deal being agreed and then broken, global fuel inventories were replenishing and oil prices dipped to below $US70 a barrel after hitting a benchmark of $US126 a barrel in late April. The first closure of Hormuzexposed vulnerabilities in fuel distribution networksand sent diesel prices sharply higher across large parts of the country, while more than 500 service stations in regional Australia ran out of at least one or all fuel within weeks of the first US-Israel missile strikes on Tehran on February 28. The stakes of a prolonged closure are particularly high in regional Australia where fuel is purchased by service station operators on a just-in-time basis and diesel powers farms, freight fleets and mining operations. Foreign Minister Penny Wong called on Iran last week to comply with international obligations governing freedom of navigation,reiterating Australia's positionthat commercial shipping through the Strait of Hormuz must be restored. Labor had been urged in mid-2025to bolster onshore fuel reserves after Iran at the time threatened to cripple oil supplies by blocking the Strait in retaliation for a US military attack on its nuclear sites. Prime Minister Anthony Albanese said the government was "deeply concerned" by the renewed fighting. "We have continued to call for a de-escalation because of the human impact that it will have on people in the Middle East, but also the global impact that it's having on global inflation and our economy here," he said. He said that Australian officials had engaged with the Chinese government in recent days to confirm jet fuel and fertiliser supplies. The assumption that has underpinned global political thinking over recent months is that global fuel markets would normalise but, as fighting resumes in Iran and shipping again becomes restricted through the Strait, a new geopolitical reality is emerging. The question Australian authorities would be war-gaming is how the nation would navigate its way through the Strait being weaponised on a permanent basis. As it happensBreaking news alertBe the first to know when news breaks.