While Australia hasn’t directly felt the pinch of oil supply shortages stemming from the conflict in the Middle East, that situation is poised to change in the coming weeks. Local fuel prices have already seen an uptick, mirroring global crude benchmarks. However, a combination of stockpiled reserves and a natural lag in the international supply chain has shielded the nation from immediate physical shortages. This buffer is now diminishing as Australia’s key fuel suppliers in Asia begin to feel the impact.
With only two domestic refineries still operational, Australia relies on imports for over 80 per cent of its petrol, diesel, and jet fuel. The vast majority of these supplies originate from refineries across Asia, with South Korea, Singapore, Malaysia, and China being the primary sources. These Asian refining nations, in turn, depend on the Middle East for approximately 60 to 70 per cent of their crude oil, much of which is transported through the increasingly perilous Strait of Hormuz.
Approaching Crunch Time: Australia’s Vulnerability
Saul Kavonic, a senior energy analyst at MST Financial, highlighted that the region is “approaching crunch time” in the immediate future. He emphasised Australia’s precarious position at the tail end of the global fuel supply chain, making it particularly vulnerable.
“We rely on our trading partners in Asia to make sure we have priority for the limited fuel that is available,” Kavonic explained. “Now you can see 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 Supply Chain Lag: A Temporary Reprieve
The delayed impact of the Middle Eastern conflict on Australia’s fuel supply is largely attributable to the significant time it takes for oil to traverse the world’s oceans. The last oil tanker bound for South Korea to successfully navigate the Strait of Hormuz before its effective closure only recently arrived.
The vessel in question, the Eagle Vellore, departed Iraq’s Al Basrah Port in the Persian Gulf on February 26, carrying approximately two million barrels of crude oil. As the ship neared the strait on February 28 – the same day that escalating tensions led to the first strikes – it reportedly received warnings from the Islamic Revolutionary Guard Corps (IRGC) that the waterway was closed. Despite these warnings, the captain elected to proceed. Vessel tracking data indicates the ship briefly paused before accelerating through the strait, executing a sharp turn around the Musandam Peninsula, and then reaching the safety of the Gulf of Oman. The cargo, initially valued at around $US130 million ($185 million) at the start of its journey, has seen its worth soar to over $US220 million.
The Asian Refiners’ Dilemma
Refineries across South Korea and the broader Asian region have already commenced a global search for alternative crude oil supplies. However, the complexities of crude oil sourcing are significant. Crude oils from different geographical locations possess distinct characteristics that dictate their suitability for specific refinery operations.
Middle Eastern crude oil is typically categorised as “heavy” or “medium” in density and viscosity, and often “sour” due to its high sulphur content. While these grades require more sophisticated refining processes, Asian refineries have been optimised to process them. The terminology of “sweet” and “sour” crude dates back to the 19th century when oil workers would assess oil quality through taste and smell.
Pauline Tang, a Singapore-based analyst at S&P Global Ratings, noted that Asian refiners usually maintain inventories sufficient for refining activities for about 30 to 45 days. They are now actively seeking alternative crude feedstocks. Tang suggested that crude oil from the United States, West Africa, and Russia are viable options.
“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,” Tang stated. “As a result, 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.”
She further warned that if the Strait of Hormuz remains closed for an extended period, the increasing scarcity and higher cost of crude could compel refiners to reduce their production rates, exacerbating fuel shortages. “We think refiners would be reluctant to shut down completely because of the significant shutdown and restart costs. That said, some Asian countries could curtail exports to protect their own markets.”
The price of airline fuel, which has more than doubled, has been more acutely affected than diesel, while petroleum products have seen the least impact. Neil Crosby, a vice president of oil analytics at Sparta, explained this disparity by highlighting that kerosene, the primary feedstock for jet fuel, is more challenging to store.
“There’s hardly any strategic reserves and commercial reserves are also quite small,” Crosby said. “It’s also difficult from a technical perspective to blend it from other fuels.”
Vandana Hari, an energy markets expert based in Singapore, cautioned that a prolonged blockade would lead to an “escalating crunch” as countries deplete their existing buffers and options. “These include running down their existing commercial crude and refined product inventories, as well as strategic reserves if they exist, banning crude and product exports if they are exporters [some countries have already done it], looking for refined product imports and finally fuel supply being rationed and pumps running dry,” she elaborated.
Asian Governments’ Responses: A Varied Approach
The responses from governments across Asia, which hold fuel reserves ranging from several weeks to many months, have been diverse. India, for instance, has successfully negotiated with Iran to allow its ships passage through the Strait of Hormuz. China, a significant supplier of jet fuel to Australia, along with Vietnam and Thailand, has imposed bans on refined product exports. Cambodia, meanwhile, has reportedly secured agreements with Singapore and Malaysia to increase fuel supplies to offset shortages.
Crucially, South Korea, Australia’s largest single supplier of refined petroleum products, has implemented an export cap set at 2025 levels. Crosby described this cap as “relatively optimistic,” adding, “I think that’s not the worst outcome. It can still change very quickly and also refiners are being asked to make sure they supply normal domestic levels to their domestic market. So if they end up cutting runs — operating at much lower rates — then the exports will probably fall below the export cap. So it’s still a bit in flux.”
Exploring Alternative Fuel Sources
Crosby also pointed out that the global nature of the liquid energy market means that issues faced by Asian refineries are only part of the equation. Analysts are observing “some very unusual trade flows” that have become economically viable due to the “outrageous” prices in Asia. Reuters reported earlier this month that Exxon Mobil had chartered vessels, the Largo Eagle and Nord Ventura, to transport a combined 600,000 barrels of petroleum products from the Gulf of Mexico to Australia via the Panama Canal. This is reportedly the first such delivery from the US Gulf Coast to Australia since 2023.
“The problem is a large part of the market is expecting the US to enact an export ban because it suits [US President Donald] Trump politically and keeps US prices down,” Crosby noted. “And that would be a very large problem [as the US is] a huge exporter of refined fuels. If that happens, it makes life even more difficult for large importing nations like Australia, unfortunately.”
The Road Ahead: Uncertainty for Australia
The journey for an oil tanker from an Asian refinery to Australia typically takes between 10 to 20 days, depending on the specific origin and destination. The Australian federal government has assured that fuel deliveries are secured until mid-April. Beyond this timeframe, considerable debate and uncertainty persist among experts regarding the potential ramifications of the global oil supply shock for Australia, specifically whether the nation will face physical shortages or simply significantly higher prices.
Energy Minister Chris Bowen recently stated that six fuel tankers out of approximately 81 expected between mid-April and mid-May have been cancelled or deferred. “Some of those have already been replaced by the importers and refiners with other sources,” Bowen informed ABC Insiders.
Kavonic suggested that if the global situation does not worsen, major refiners should still have product available for export beyond their domestic markets, albeit “far less” than previously. “So there will not be enough fuel to go around for all their usual customers, as there was prior to the war,” he said. “So someone — or some nations — are going to have to go without. Prices are going to go up and that’s going to, in part, sort out who gets fuel and who doesn’t. And Australia as a country and the Australian government has the ability to pay more than, say, developing economies in South Asia.”
However, he cautioned that less developed countries would still endeavour to secure fuel for their critical services, and Asian refiners would prioritise their domestic markets. “That’s where we face a real risk of not being able to get fuel at any price because we do not have control over the supply chain,” Kavonic warned. “I think it’s not the case that Australia can simply say it’s just a matter of price and as long as we’re willing to pay, everything’s going to be alright mate. There are definitely scenarios where even with us willing to pay a premium price, we could still be left physically short.”
Crosby indicated that while Australia could likely provide financial backing for imports if necessary, the sheer magnitude of the problem offers no guarantees against pump shortages. He highlighted Europe’s own demand for imported diesel, noting, “They’re also likely to bid very hard for all the spare stuff that’s going around. And remember, the size of this problem is huge. We’re talking about 20 per cent of the global market. That’s just impossible. That’s the black swan event.”
Leveraging LNG for Energy Security
Kavonic proposed that the Australian government should actively engage diplomatic channels to ensure Australia receives priority for refined fuel exports from its Asian trading partners.
“What they should be doing is reminding our trading partners that they rely on Australian LNG [liquefied natural gas] for their energy security, and in turn we expect to be able to rely on them for our fuel energy security.” He asserted that Australia, as a major LNG exporter, is in a strong position to advocate for its place on the priority list for imported fuel. “While there’s a shortage of fuels, there’s also an even bigger shortage of LNG in the world right now because of the war,” he added.
A spokesperson for the Department of Foreign Affairs and Trade confirmed that the government is “engaging intensively and cooperatively with key energy trade partners.”
