Updated ,first published
Australian motorists face an extended wait for relief at the petrol pump amid warnings the breakdown of Middle East peace talks and the United States’ plan to blockade Iranian ports threaten to keep global energy markets in a state of prolonged volatility.
After briefly dipping on news of a fragile ceasefire last week, oil prices surged again as the lack of a clear path to ending the war continued to rattle investors and shattered a short-lived optimism that oil flows may begin stabilising. The cost of Brent oil, the global crude benchmark, shot up 7 per cent to back above the $US100-a-barrel threshold, while US-traded West Texas Intermediate rose 8 per cent to $US105.
Fuel prices in Australia rise and fall in line with crude oil markets, typically with a lag of seven to 10 days. At service stations across the country, regular unleaded was selling for an average of $2.24 a litre last week, according to the Australian Institute of Petroleum. That is down nearly 30¢ a litre from the start of this month following the government’s halving of the fuel excise, but remains 30 per cent higher than before the war began on February 28.
Now, with warnings there could potentially be “weeks or even months” of the conflict still to run, Australia’s fuel supplies are unlikely to return to pre-war levels any time soon, experts said.
Jon Berry, KPMG’s geopolitics lead, said the breakdown in peace talks between the US and Iran, which ended on Sunday without a deal, represented a major setback that would delay any end to the war and raised the risk of further escalation.
“The two sides, the US and Iran, were so far apart on what would constitute an acceptable settlement that the best-case scenario was that they’d get through the first couple of sessions, but it really fell at the first hurdle,” he said.
“The way it went over the weekend is negative, and the time frames are really starting to stretch out in front of us.”
Investors and analysts are most focused on the ongoing disruption to shipping in the Strait of Hormuz, a vital thoroughfare for oil and natural gas tankers. Since the war began, Iran has effectively shut the strait to all ships other than its own, and ships that had secured safe passage from Tehran. The de facto blockade has paralysed up to one-fifth of the world’s oil supplies, sent prices soaring, and made refined fuels such as petrol, diesel and jet fuel vastly more expensive.
After no deal emerged from peace talks, US President Donald Trump said in a social media post that the US Navy “will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz”. The US military’s Central Command later said the blockade would only apply to ships going to or from Iranian ports. It is due to take effect from midnight.
If Trump’s strategy succeeds, he would eliminate Iran’s greatest point of leverage in negotiations with the US and clear the strait again for global trade, potentially lowering oil prices.
But until that happens, Commonwealth Bank commodities analyst Vivek Dhar said the blockade would directly endanger Iran’s oil exports through the Strait of Hormuz of about 1.7 million barrels a day, representing 1.6 per cent of global demand
“Therefore, the blockade tightens physical oil and refined product markets even further,” he said.
Dhar said there was a widening disconnect between “futures” prices – to buy and sell a volume of oil at a later date – and the short-term market in which oil supplies are physically changing hands. Brent futures prices for June delivery were trading around $US102 a barrel, while energy companies have been buying oil for more than $US140 a barrel.
“We see Brent futures marching towards physical prices in coming weeks,” he said, adding that Iran’s response to the US blockade could “accelerate this price increase depending on the severity of their actions”.
Retired Admiral Gary Roughead, a former chief of US naval operations, cautioned that Iran could fire on ships in the Gulf or attack infrastructure of the Gulf states that host US forces.
“I honestly believe that if we begin to do it, Iran will have some kind of a reaction,” Roughead said.
While a shift toward peace in Iran would help unclog shipping routes and drag prices down from historic highs, analysts and Australian fuel industry leaders warn that even a swift resolution to the conflict would fail to bring local petrol and diesel prices all the way back to their pre-war ranges of between $1.66 and $1.80 a litre for some time.
Even once more shipping traffic returned to the Strait of Hormuz, energy flows would take some time to return to normal as oil production, refining and storage infrastructure in the Persian Gulf had been badly damaged and needed repair.
For the Asian oil refineries, which provide 80 per cent of Australia’s liquid fuel, it could be more than weeks or months before they receive sizeable new crude oil deliveries, said Berry. Empty tankers would face long voyage times and port congestion to load in the Middle East, he said, while Asian refiners would have a backlog of orders to fill, including for their own domestic demand.
“The saying about fuel prices is they are quick to go up and slow to come back down,” Berry said. “Even if we started to see Brent in the sub-$US100 range, it takes time for that to wash through.”
While a fuel crunch remains a risk in Australia, especially if Asian refiners run lower on crude oil and start scaling back output, the federal government and fuel industry are increasingly confident that supplies remain stable. Importers have been diversifying supply chains to secure fuel from other parts of the world, while the Albanese government is holding bilateral talks with Asian neighbours to shore up future deliveries. “The one big unknown now is how long this war goes on for,” said one fuel industry executive, who asked not to be named.
Analysts at investment bank UBS on Monday said the “challenging start” to peace talks had undermined confidence in the prospect of a swift resolution. “The respective negotiating positions of the US and Iran remain far apart, with disagreement over Iran’s nuclear program, the issue of war reparations, and control of the strait,” they said.
“But our base case remains that both sides have an incentive to find a diplomatic solution.”
With Reuters
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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.Connect via X or email.
