Australia Fuel Shortages: Iran War Threatens Supply & Price Hikes
Australia is bracing for potential fuel shortages as the US-Israel war on Iran disrupts global oil supplies, though the direct impact on consumers has so far been limited to rising prices. Although stockpiles and supply chain lags have shielded the country from immediate shortages, experts warn that the situation is “approaching crunch time” as disruptions ripple through Asia, the source of the vast majority of Australia’s refined petroleum products.
More than 80 per cent of Australia’s petrol, diesel and jet fuel is imported, with nearly all of it originating from refineries in Asia – particularly South Korea, Singapore, Malaysia and China. These refineries, in turn, rely on crude oil from the Middle East, with 60 to 70 per cent typically sourced via the Strait of Hormuz, a critical waterway now facing significant disruption.
Saul Kavonic, head of energy research at MST Marquee, stated that Australia’s position at the end of the fuel supply chain makes it particularly vulnerable. “We rely on our trading partners in Asia to build sure we have priority for the limited fuel that is available,” he said. “Now you can witness what the problem is there: if you’re South Korea, you’re going to prioritise your own citizens first before you think about what you’ll do with the leftover refined product that you have.”
The tanker Eagle Vellore recently completed a perilous journey, becoming the last South Korea-bound vessel to successfully navigate the Strait of Hormuz before it was effectively closed. Departing Iraq on February 26, the ship received warnings from the Islamic Revolutionary Guard Corps (IRGC) as it approached the strait on February 28 – the day the US and Israel launched their initial strikes. Despite the warning, the captain chose to proceed, accelerating through the strait and narrowly avoiding potential conflict. The cargo, initially worth $US130 million ($185 million), is now valued at over $US220 million, reflecting the escalating market prices.
Asian refiners are already scrambling to secure alternative crude oil supplies, but the task is complicated by the specific characteristics of Middle Eastern crude. The oil from the region is typically “heavy” or “medium” in density and “sour” (high in sulphur), and Asian refineries are largely optimised to process this type of crude. Switching to alternative sources, such as those from the US, West Africa, or Russia, will incur higher logistics costs and longer shipping times, ultimately increasing prices for consumers.
Pauline Tang, a Singapore-based analyst at S&P Global Ratings, noted that Asian refiners typically maintain 30 to 45 days of inventory. “However, sourcing alternative crudes will inevitably incur additional costs for refiners, given much higher logistics costs; it will also take longer shipping times, given the distance,” she said. “even if Asian refiners were able to continue operating on a business-as-usual basis, their customers, including those in Australia, are likely to have to pay a lot more.” Some refiners, including those in Singapore and Malaysia, have already begun reducing output or shutting down units.
The impact is already being felt beyond fuel prices. The price of airline fuel has more than doubled, while petrol has experienced a more moderate increase. Kerosene, the feedstock for jet fuel, is particularly affected due to limited storage capacity and difficulty in blending alternatives. Vandana Hari, a Singapore-based energy markets expert, warned of an “escalating crunch” as countries exhaust their reserves and options, potentially leading to fuel rationing and pump shortages.
Governments across Asia are responding with varying measures. India has successfully negotiated passage for its ships through the Strait of Hormuz, while China, Vietnam, and Thailand have banned exports of refined products. Cambodia is reportedly seeking increased fuel supplies from Singapore and Malaysia. South Korea, Australia’s largest source of refined petroleum, has imposed a cap on exports at 2025 levels, a move described by Neil Crosby, head of research at Sparta Commodities, as “relatively optimistic.”
Independent service stations are already feeling the squeeze, with some forced to sell fuel at above-average prices. The Australian government has stated that fuel deliveries are assured until mid-April. Beyond that, the situation remains uncertain.
The US has reportedly booked vessels to deliver fuel from the Gulf of Mexico to Australia via the Panama Canal, marking the first such delivery since 2023. However, the possibility of a US export ban, driven by domestic political considerations, poses a significant risk. “The problem is a large part of the market is expecting the US to enact an export ban since it suits [US President Donald] Trump politically and keeps US prices down,” Crosby said. “And that would be a very large problem.”
Energy Minister Chris Bowen acknowledged that six fuel tankers out of 81 expected between mid-April and mid-May have been cancelled or deferred, though he stated that some have already been replaced by importers and refiners. Kavonic emphasized the importance of diplomatic efforts to ensure Australia remains a priority for fuel exports from Asian trading partners, highlighting Australia’s role as a major LNG exporter and the potential to leverage this position for energy security.
The Department of Foreign Affairs and Trade confirmed that the government is “engaging intensively and cooperatively with key energy trade partners.” The situation remains fluid, with the potential for significant disruption to Australian fuel supplies if the Strait of Hormuz remains closed for a prolonged period.