Three cargo ships were struck by projectiles in the Strait of Hormuz yesterday, further constricting the vital waterway as the conflict between Iran and the US-Israel alliance intensifies. The attacks, which caused limited damage but prompted rerouting of several vessels, have exacerbated fears of a wider disruption to global oil and gas supplies, driving up prices and raising concerns about potential shortages.
The Iranian Revolutionary Guard Corps (IRGC) has repeatedly threatened to block the Strait of Hormuz, a narrow passage between Iran and Oman through which approximately 20% of the world’s oil passes, in response to ongoing military strikes. While US Central Command maintains the strait remains open, shipping traffic has plummeted, with Lloyd’s List reporting an 81% decrease in transits compared to last week. Nearly all ships are now diverting away from the Gulf, according to the shipping journal.
Australia and New Zealand, heavily reliant on imported refined fuel, are particularly vulnerable to disruptions in oil supply. Both countries sit at the end of a long supply chain and have limited domestic refining capacity. Australia now has only two operational oil refineries, down from eight two decades ago, and New Zealand’s last refinery closed in 2022. This has led to a significant reduction in fuel storage capacity in both nations.
Experts warn that even a temporary closure of the Strait of Hormuz could have significant economic consequences. The Conversation reports that approximately 30% of Australia’s refined oil transits through the strait, as the country sources much of its refined product from South Korea and Singapore, which in turn rely on Middle Eastern crude oil. New Zealand’s fuel reserves are estimated to last around four weeks if all new supply were cut off, while Australia’s reserves, though recently expanded, remain limited.
In response to rising prices, the International Energy Agency (IEA) announced yesterday a collective release of 400 million barrels of oil from its member nations’ reserves – the sixth and largest such release in its history. Australia and New Zealand are among the 32 IEA member countries participating in the release. However, the effectiveness of this measure is uncertain, given the relatively small size of Australia and New Zealand’s individual reserves.
Globally, oil prices have spiked 25% since the beginning of the conflict on February 28th. This has translated into higher prices at the pump for consumers. Authorities in both Australia and New Zealand are monitoring fuel markets for potential price gouging. The Australian Competition and Consumer Commission (ACCC) has stated it is “closely watching market behaviour” and will investigate any anti-competitive practices. New Zealand’s Commerce Commission is taking a similar approach.
The Australian government has taken steps to improve fuel security in recent years, including arranging for additional fuel storage in the United States and expanding domestic reserve capacity, particularly for diesel. Minimum stockholding levels for fuel companies were introduced following the outbreak of the war in Ukraine. While current reserve levels – 36 days of petrol, 32 days of diesel, and 29 days of aviation fuel – are higher than in the past, they remain below the IEA’s recommended 90-day supply.
Energy Minister Chris Bowen has attributed recent price increases to panic buying, urging consumers to avoid filling up ahead of anticipated price surges. However, the long-term impact of the crisis on fuel prices remains uncertain. The potential for further escalation in the conflict, coupled with the possibility of disruptions to gas supplies – Qatar, the world’s second-largest producer, has also halted gas flows – continues to weigh on markets. Australia’s domestic gas price cap of AU$12 per petajoule, introduced after the Ukraine invasion, has had limited success in lowering prices, and the government may face renewed calls to address windfall profits enjoyed by gas exporters.
The crisis underscores the vulnerability of Australia and New Zealand’s transport fuel supply chains. Policymakers are now facing increasing pressure to explore options for bolstering energy resilience in a rapidly destabilizing geopolitical landscape.
