For more than 60 years, Australia has not built a single large-scale oil refinery. Now, amid the war between the United States, Israel, and Iran, the federal government and Western Australia will allocate four million Australian dollars (about 2.5 million euros) to finance a prefeasibility study on a new plant in Karratha, in the remote Pilbara region. If the project goes ahead, the oceanic nation would have three refineries.
Australian Prime Minister, Anthony Albanese, announced the plan at the end of July with the eyes of the entire nation on him. He insisted that “the longer the conflict in the Middle East lasts, the greater the impact on Australia”. His words, however, did not ease the slap of reality that Australians were already feeling at the pump.
The hole in their pockets has widened amid the ups and downs of the conflict and has been reflected in the figures. The Bureau of Statistics confirmed that the country experienced the largest monthly increase in history between late February and mid-March this year. Diesel took the worst hit, with a nearly 91% rise in wholesale prices. As happened at the start of the war in Ukraine, Canberra again opened the strategic fuel reserve. This time it released the equivalent of six days of gasoline and five of diesel to ease a very fragile and unprotected market: the reserve in Australia is 36 days of gasoline consumption, 34 of diesel, and 32 of aviation fuel, far from the 90 days stipulated by the International Energy Agency.
Fire at a refinery amid the Hormuz crisis
This fragility became even more evident when one of the nation’s two active refineries caught fire in mid-April, delivering another blow to the fuel market. The large-scale fire caused the Geelong plant in Victoria to lose almost 20% of its diesel capacity and 40% of its gasoline capacity. The domestic misfortune came in the midst of a geopolitical storm.
In May, the Albanese government announced a package of more than 10.7 billion Australian dollars (about 6.5 billion euros) to safeguard the country’s energy security, funded outside the budget and with a view to 2030. Among the various facets of the plan, the goal to bring diesel and aviation fuel reserves to 50 days of coverage stands out. Additionally, a 10 million allocation was confirmed to study the feasibility of new refineries, the seed of what months later has become the Karratha project.
The conflict between the United States, Israel, and Iran has put the Strait of Hormuz in check, through which about 20 or 21 million barrels of oil pass daily, according to estimates from the United States Energy Information Administration. Any stumble in that corridor almost immediately translates to global fuel prices, and Australia, which imports about 80% of what it consumes, feels it sooner than almost anyone else.
The import map explains much of that exposure. South Korea supplies about a quarter of the fuel Australia buys, followed by Malaysia, with nearly 13%. Singapore and Japan complete the list of usual suppliers, in a range that leaves the country almost entirely dependent on Southeast Asia and North Asia – economies that, in turn, depend on the crude that crosses the Strait of Hormuz: around 75-80% of Tokyo and Seoul’s oil imports transit through that corridor.
Faced with scarcity, Canberra has opted to diversify rather than wait: Energy Minister Chris Bowen acknowledged that Australia was seeking new fuel sources, including purchases from the United States and Mexico, while Singapore and Japan committed to ensuring the flow of exports to the country. Australia signed a specific agreement with Singapore to keep oil and gas routes open amid the global crisis, leveraging a bilateral relationship strengthened months earlier with a Comprehensive Strategic Partnership. Foreign Minister Penny Wong recently toured Japan, South Korea, and China – three of the country’s four largest trading partners – to reinforce the same commitments.
On this board, Australia has an ace up its sleeve: it is one of the world’s major producers and exporters of liquefied natural gas, an asset that its authorities have suggested gives them room to negotiate the supply of fuel they do not produce. Thus, while Washington wages the war that has raised its gasoline prices, Canberra has also chosen to try to shield itself internally – in the very long term with the potential construction of its third refinery – and by weaving agreements with its Asian neighbors rather than relying solely on its historic ally.
