Ninety per cent dependent, thirty days deep: Australia's fuel supply chain unravels

In September 1973, a few weeks before the Arab oil embargo would reshape global energy politics, the Australian government's principal energy adviser told a Senate committee that the nation's fuel supply was 'essentially secure' due to diversified import sources. Within six months, petrol prices had risen 40 per cent, service stations were rationing sales, and the Whitlam government was scrambling to explain why its assurances had proven worthless. The parallels with March 2026 are uncomfortable, and they are worth examining carefully.

When Iran closed the Strait of Hormuz two weeks ago, approximately 20 per cent of the world's daily oil supply was cut off from its usual route to market. For most developed economies, this was a serious disruption. For Australia, a nation that imports 90 per cent of its liquid fuel and sits at the end of the longest supply chains in the global petroleum trade, it was something closer to a stress test that the system was never designed to pass.

The arithmetic of vulnerability

The numbers tell a story that policy documents have obscured for years. Australia currently holds 38 days of petrol reserves, 30 days of diesel, and 30 days of jet fuel. These figures, which the government cites as evidence of adequate preparation, assume normal consumption patterns. They do not account for panic buying, which has increased demand by 100 per cent over the past fortnight. They do not account for export bans from regional suppliers. They do not account for what happens when six of 81 expected tankers are cancelled or deferred in a single month.

Australia is very vulnerable. We are at the end of a very long global supply chain.

— Malcolm Roberts, CEO, Australian Institute of Petroleum

The International Energy Agency requires member nations to hold 90 days of net oil imports in strategic reserves. Australia has never met this standard. The Morrison government announced a plan in 2020 to build a strategic reserve by purchasing fuel stored in American facilities, a creative accounting measure that counted barrels sitting in the Gulf of Mexico as Australian reserves. The fuel was always theoretical. Now, with Hormuz closed and Asian suppliers hoarding stock, it remains theoretical.

The long way around

Energy Minister Chris Bowen announced this week that 74 of 80 fuel shipments expected between April and May remain on track to arrive. The statement was intended to reassure. It did not mention that these shipments are now taking circuitous routes through waters that add days to delivery times and dollars to freight costs. ExxonMobil, BP, and Vitol are shipping record volumes from the Gulf of Mexico, a route that adds roughly 15,000 nautical miles compared to the Singapore-to-Sydney run that supplies most of Australia's refined fuel.

The cost of this rerouting is not academic. Freight rates for clean petroleum products have tripled since the blockade began. These costs will be passed through to consumers, though the timing and magnitude remain uncertain. What is certain is that Australia's two remaining domestic refineries, the Ampol facility at Lytton in Queensland and Viva Energy's operation at Geelong, are now operating at maximum capacity. They have released an additional 520 million litres of petrol and diesel into the domestic market. This is helpful. It is not sufficient.

Regional neighbours close the door

The decision by China and Thailand to ban fuel exports represents a strategic calculation that Australian policymakers hoped would never be tested. Both nations are net importers of crude oil but maintain significant refining capacity. In normal circumstances, their refined products flow into regional markets, including Australia. In a supply crisis, the calculation changes. Governments prioritise domestic stability over trade relationships, and Australia, with its small population and distant geography, finds itself at the back of the queue.

• China: Banned all refined fuel exports on 15 March 2026, citing 'national energy security requirements'
• Thailand: Suspended fuel export permits on 18 March, diverting refinery output to domestic distribution
• Singapore: No export ban, but spot prices at Singapore trading hub up 65% since blockade began
• India: Increased export taxes on diesel and petrol by 40%, effectively pricing Australian buyers out of the market

The regional response illustrates a principle that economists understand but politicians prefer to ignore: in a genuine supply crisis, contracts matter less than proximity. Australia's geographic isolation, usually framed as a security asset in defence contexts, becomes a liability when every barrel of oil must travel further to reach Australian shores than to reach competing buyers in Asia.

The price signal and its consequences

Treasurer Jim Chalmers delivered what may be the most significant economic statement of the crisis this week: fuel prices will not return to pre-conflict levels this year, and potentially not for three years. The statement acknowledges what the futures market has already priced in. Brent crude is trading at levels not seen since the 2022 Russian invasion of Ukraine, and the forward curve suggests traders expect these prices to persist.

We're being upfront with Australians about this. Prices are unlikely to return to pre-conflict levels this year. It could be three years before we see that kind of normalisation.

— Jim Chalmers, Treasurer of Australia

The ACCC has announced an investigation into alleged price-gouging by major fuel suppliers. This is a familiar pattern in fuel crises: governments, unable to control global commodity prices, turn regulatory attention to domestic retail margins. Whether the investigation finds evidence of coordinated pricing behaviour or merely identifies the pass-through of higher wholesale costs remains to be seen. The timing, at least, serves a political purpose.

What the 1970s taught us, and what we forgot

The 1973 oil shock prompted most developed economies to invest in strategic petroleum reserves, diversify energy sources, and develop domestic production capacity. Japan, similarly import-dependent, built storage facilities capable of holding 200 days of consumption. South Korea, starting from a similar position to Australia, now maintains 90 days of government-held reserves plus mandatory commercial stockholding. Australia took a different path.

The closure of Australian refineries accelerated over the past two decades. In 2000, eight refineries processed crude oil into domestic fuel. Today, two remain. The closures were individually rational: global refining margins are thin, and it is often cheaper to import refined product from megascale Asian facilities than to process crude domestically. The collective result is a nation that has outsourced its energy security to supply chains it does not control.

The government's fuel security framework, established in 2021, provided subsidies to keep the Lytton and Geelong refineries operational. The programme was designed to maintain minimum domestic refining capacity. It was not designed for a scenario in which regional suppliers simultaneously restrict exports while the primary shipping route through Hormuz becomes impassable. No policy framework was designed for that scenario, because planning for unlikely events is expensive and politically unrewarding.

The weeks ahead

The immediate outlook depends on variables that Australian policymakers cannot control: the duration of the Hormuz closure, the willingness of Gulf of Mexico suppliers to divert volumes to a distant market, and the decisions of regional governments about export restrictions. If the conflict extends into April, the buffer provided by existing stocks and rerouted shipments will narrow. If panic buying continues at current rates, it will narrow faster.

Australian Institute of Petroleum CEO Malcolm Roberts has been unusually direct in his assessment. The industry body typically maintains diplomatic neutrality on policy questions, but the current crisis has prompted franker language. Australia is vulnerable. The supply chain is long. The reserves are thin. These are not new observations, but they are now being made by the people who run the system rather than the academics who critique it.

The 1973 oil crisis prompted a generation of policy reform in energy security. Whether the 2026 crisis will prompt similar reform depends on how long the disruption lasts and how much economic damage accumulates before shipping routes normalise. History suggests that governments respond to crises with urgency and then forget the lessons when commodity prices fall. The Strait of Hormuz will reopen eventually. The question is what Australia will have learned, and what it will choose to remember.