Fuel crunch risk grows as Strait closure drags on

Analysts and economists are uncertain whether Australia is likely to face a worsening fuel supply crisis after a dramatic week that saw traders lift bets on peace in the Middle East and a fire at Viva Energy’s refinery in Victoria.

Over the week benchmark global Brent crude oil prices eased around 4 per cent to $US98.12 a barrel, but analysts warned the Strait of Hormuz waterway between Iran and Oman remained largely closed to ships for the transport of fuel and other essential petrochemicals for fertiliser production.

“Australia is particularly vulnerable as it imports 80 to 90 per cent of its fuel,” said AMP’s chief economist Shane Oliver. “Our rough estimate is that if the flow of oil through the Strait does not quickly resume we could survive till late next month but beyond that fuel rationing would likely be required which would mean a direct reduction in economic activity and the likelihood of recession.”

On Friday, Prime Minister Anthony Albanese rejected claims that the fire at Corio Refinery in Geelong and any potential reduction in unleaded petrol or diesel supply as a result added to the likelihood the Government will need to impose stage three travel restrictions on the public.

“The event here (in Geelong) will not lead to any change. We’ll give an update tomorrow about fuel supplies that are on hand. Fuel is continuing to come in,” Mr Albanese told reporters.

“The Government’s put in place the four stages, in order to plan and in order to prepare, for circumstances which are predominantly impacted by global events, not by events here.”

Viva’s refinery south-west of Melbourne supplies about 50 per cent of Victoria’s fuel and 10 per cent of the nation’s.

Petrol prices worry consumers

Unleaded petrol prices for Premium 98 fuel in Sydney’s eastern suburbs averaged around $2.34 a litre on Friday afternoon, versus prices that hit average highs around $2.80 a litre in late March, before the Government moved to subsidise pump prices by reducing the excise tax paid by 20 cents a litre.

On Friday, ANZ estimated the soaring petrol prices as a result of the Middle East conflict had added an average $18 per week to the average household bill in March, equivalent to $936 a year.

“If fuel prices remain at current levels through 2026, the cost to households would be equal to around 0.4 per cent of nominal GDP,” ANZ economist Adam Boyton said. “If households decide to offset higher fuel costs by reducing spending elsewhere dollar-for-dollar, that will subtract around 0.7 per cent from real household consumption growth in the first half of the year.”

On April 29, data due for March quarter inflation is tipped to be the first to show the impact of the rising cost of living linked to the energy supply shock from the Middle East.

Household confidence plunges, shares robust

The worries around the local economy, soaring inflation and plunging Westpac–Melbourne Institute consumer confidence that on April 15 hit its lowest since the depths of of COVID lockdowns failed to rattle share market investors.

For the week, the S&P/ASX 200 closed down just 13 points or 0.1 per cent to 8947 points and is down just 2.7 per cent since the energy supply chain shock unleashed by the start of the war on Iran on February 27.

On Thursday, data showed Australia’s jobless rate remained unchanged at 4.3 per cent, even after the RBA delivered two rate increases in 2026, with market expectations for two more this year.

In the US and Japan, shares hit a record high on Thursday as traders expect the missile attacks in the Middle East have likely finished, even if major details of the peace agreement — including the Strait of Hormuz’s re-opening — remain to be finalised.

“Australian share markets have likely seen the worst from the war and oil shock if the flow of oil quickly resumes but the risk of further falls taking us to a 15 per cent top to bottom correction remain given uncertainty around the peace talks and flow of ships through the Strait,” Dr Oliver said.

Some analysts still believe the extended closure of the Strait of Hormuz into April means Australia will eventually face worsening fuel supply shortfalls that will force the Government to ask citizens to voluntary restrict travels.

On Thursday, Rystad Energy head of energy for Australia Gero Farruggio said he thought another two months of fuel supply chain disruption to Australia is now inevitable.

“If the Middle East conflict is not swiftly resolved, Asian refinery runs will be further reduced,” Mr Faruggio warned. “Australia needs to plan for an extended disruption. That means stage three restrictions sooner rather than later, before our reserve position deteriorates to the point where stage four becomes unavoidable.”