Australia Faces Fuel Supply Crunch as Iran War Disrupts Asian Markets
Australia is currently shielded from the immediate impact of oil supply shortages stemming from the escalating conflict between the US, Israel and Iran. Local fuel prices have risen in line with global crude oil benchmarks, but existing stockpiles and the time lag in the supply chain have prevented physical shortages from reaching the country. However, this situation is poised to change in the coming weeks as disruptions ripple through Asia, Australia’s primary source of refined petroleum products.
Dependence on Asian Refineries
Australia relies heavily on imports for its fuel needs, with over 80% of petrol, diesel, and jet fuel sourced from overseas. Almost all of these refined products come from Asian refineries, particularly those in South Korea, Singapore, Malaysia, and China. These Asian refineries, in turn, depend on the Middle East for approximately 60 to 70% of their crude oil supply, a flow now significantly hampered by the conflict and the effective closure of the Strait of Hormuz.
Approaching “Crunch Time”
According to Saul Kavonic, head of energy research at MST Marquee, the region is “approaching crunch time,” and Australia’s position at the end of the fuel supply chain makes it particularly vulnerable. “We rely on our trading partners in Asia to produce sure we have priority for the limited fuel that is available,” he explained. “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 Eagle Vellore: A Glimpse into the Disruption
The oil tanker Eagle Vellore, which departed Iraq on February 26, provides a concrete example of the challenges. The vessel received warnings from the Islamic Revolutionary Guard Corps (IRGC) that the Strait of Hormuz was closed upon approaching the strait on February 28 – the day the US and Israel launched their initial strikes. Despite the warning, the captain chose to proceed, navigating a narrow passage to safety. The cargo, initially worth around $130 million, is now valued at over $220 million, reflecting the increased market value due to supply constraints.
Asia Scrambles for Alternatives
Refineries across Asia are actively seeking alternative crude oil sources. However, switching to different crude types presents challenges, as Asian refineries are optimized to process “heavy” or “medium” density, “sour” (high-sulfur) crude oil from the Middle East. S&P Global Ratings analyst Pauline Tang notes that refiners typically maintain 30 to 45 days of inventory but are now facing higher logistics costs and longer shipping times to secure alternative feedstocks.
Rising Costs and Potential Rationing
Tang further explains that even if Asian refiners maintain operations, customers – including those in Australia – will likely face significantly higher prices. If the Strait of Hormuz remains closed for an extended period, dwindling supplies and escalating costs could force refiners to reduce production, exacerbating fuel shortages. Some refiners, such as those in Singapore and Malaysia, have already begun reducing output.
Impact on Specific Fuel Types
The price of jet fuel has been disproportionately affected, more so than diesel and petrol, due to its limited storage capacity and difficulty in blending with other fuels. Experts warn of an “escalating crunch” as countries exhaust their reserves and options, potentially leading to fuel rationing and empty pumps.
Government Responses and Trade Flows
Asian governments are responding to the crisis with varying strategies. 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 seeking increased fuel supplies from Singapore and Malaysia. South Korea, Australia’s largest supplier of refined petroleum products, has imposed a cap on exports at 2025 levels.
US Fuel Deliveries and Potential Bans
Recent reports indicate that Exxon Mobil has booked vessels to deliver 600,000 barrels of petroleum from the Gulf of Mexico to Australia via the Panama Canal – the first such delivery since 2023. However, there is concern that the US may impose an export ban, driven by domestic political considerations, which would further complicate the situation.
Australia’s Position and Future Outlook
Australia’s fuel deliveries are currently assured until mid-April. Beyond that, the impact of the global oil supply shock remains uncertain. Energy Minister Chris Bowen has stated that six fuel tankers out of 81 expected between mid-April and mid-May have been cancelled or deferred, with some replacements already secured. Experts suggest that even with Australia’s willingness to pay a premium, physical shortages remain a possibility.
Kavonic emphasizes the importance of diplomatic efforts to ensure Australia remains a priority for fuel exports from Asian trading partners, leveraging Australia’s position as a major LNG exporter.