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Own Goal: Middle East war to hit oil price, so gas price, so electricity price

by Rex Patrick | Oct 6, 2024 | Government, Latest Posts

Years of political and bureaucratic failure on fuel security policy is about to hit the cost of living for all Australians. Preventable fuel price rises are about to occur. Using information contained in a previously secret Australian Government document, Rex Patrick explains.

An attack on Iran by Israel is imminent – retaliation for Iran’s recent missile attack and part of the escalating conflict in the Middle East. Such an attack would engage one scenario that was considered as part of a secret study into Australia’s liquid fuel security – a large regional war in the Middle East.

We’ve already seen oil prices spike in recent days after Houthi rebels attacked a British oil tanker in the Red Sea and US President Joe Biden indicated that his administration had discussed with Israel an attack on oil production facilities in Iran to cut off that country’s major revenue source.

Goldman Sachs is predicting prices will rise from the current $US70 per barrel to $US90 per barrel in the short term. Global gas prices track the oil price, and electricity prices in Australia are largely influenced by the price of gas.

While it would be impossible to isolate Australians from the consequences of the scenario playing out, prudent policy, planning and implementation could have softened the blow in the middle of an undisputed cost of living crisis.

Liquid Fuel Security Review

In 2018, the Morrison Government commissioned a Liquid Fuel Security Review which was completed in October 2020. In its reasoning for justifying the Review the then Government stated:

Liquid fuel is the backbone of the Australian economy and this is unlikely to change much in the short term. For many Australians, fuel security means having confidence that there will be enough fuel for our journey to work or so businesses large and small can keep running day to day. It also means knowing that, when things go wrong, there is a plan in place that takes all reasonable steps to minimise the impacts for fuel users.

The Coalition Government didn’t publish the review. Indeed, they kept it secret from Australians, and so did the Labor Government that took office in May 2022. 

I first requested access to the review using Freedom of Information laws in December 2020. Four years later, under the pressure of an AAT proceeding, the current Government capitulated and provided me with almost all of the document.

Australian Government Fuel Security Review (Source: FOI)

Australian Government Fuel Security Review (Source: FOI)

Large Scale Middle East Conflict

In 2019, the Middle East supplied around 17% of Australia’s crude oil imports around 1% in refined products. However, the three largest suppliers to Australia of refined products, Singapore, South Korea and Japan, sourced 20, 35 and 44%, respectively, of their crude oil from Saudi Arabia and Iran.

The review looked at what would happen in the event of a large-scale conflict between two countries in the Persian Gulf and determined that this had the potential to stop their contribution to the global market for a period of time. It could also impede supply from other gulf majors that would potentially account for a large share of total Middle East production.

The immediate effect of such a conflict could be mitigated somewhat by a number of measures; increased prices resulting in reduced global demand, an increase in US shale oil production capacity, the availability of other countries commercial stocks (15 to 30 days) and International Energy Agency (IEA) emergency stock releases.

Notably, all of the mitigation strategies are external and dependent on international cooperation. Such cooperation can be very fragile in the context of a major crisis. Australia has no sovereign buffer. 

The Fuel Security Review predicted that global oil prices could increase by $100 per barrel to bring oil supply and demand into balance. 

Retail prices in Australia could rise by $1 per litre.

Mitigation failure

Australia is supposed to, by international agreement, have 90 days of petroleum reserves. Even using dodgy calculations by the Australian Government (the IEA does not accept them as proper), which includes in its reserves the fuel at sea on its way to Australia, our current reserves are 51 days. 

Our real current reserve figures are at 31 days for petrol, 24 days for diesel (which keeps the country supplied with food and medicines) and 21 days for aviation fuel.

Fuel Statistic (Source: DCCEEW)

Fuel Statistic (Source: DCCEEW)

The Morrison Government invested taxpayers’ money to increase our storage capacity to 30 days, but the projects to implement the increase are moving very slowly. In any event, it comes nowhere near the required 90 days.

Government betrayal

If Australia had 90 days reserves, not only would that have positive national security impacts in the event of war closer to home, the reserves could be released to soften price increases in Australia in relation to current events taking place.

As things stand, a major war in the Middle East and consequent disruption of petroleum supplies could put Australia in a very difficult position.  

Forget toilet paper — try no food, fuel or medicine. Why Canberra needs to act on fuel security

With very little reserve in the tank, the Australian Government will need to move immediately to seek international cooperation to ensure continuing supplies from overseas. 

If such cooperation is not immediately forthcoming, and in a context of grave international tension and conflict it’s far from guaranteed, there will be no time at all before the Government might have to take some hard decisions on fuel rationing.  

This is the risk that comes from grave policy failures and distorted priorities.  

Instead of investing in fuel storage, the Defence Department has been busy wasting tens of billions in failed procurements, including $4 billion spent not buying French submarines.

Instead of investing in fuel storage, the Albanese Government has been, as part of AUKUS, pouring billions into US and UK shipyards to improve those country’s sovereign resilience.

None of that will help if Australia’s logistic chains grind to a halt thanks to fuel shortages. It’s dumb, and dangerous.

Hip pocket pressure

As things start to unravel further in the Middle East, everyday Australians will suffer on a cost-of-living front. And they will suffer because of the failure of our leaders on energy. 

On top of high gas prices, which drives electricity prices – all caused by the old parties not adopting a gas reservation scheme on account of the fact it would upset the gas cartel – Australians will be hit again on fuel prices thanks to fuel security incompetence. The price of gas tracks the price of oil.

Cone of Silence. Government hides gas Cartel’s dirty secrets in Clayton Utz fee-fest

Rex Patrick

Rex Patrick is a former Senator for South Australia and earlier a submariner in the armed forces. Best known as an anti-corruption and transparency crusader - www.transparencywarrior.com.au.

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