How a sixth-generation farming family is preparing for the energy crisis about to rock Australia
Seeing the war coming, the Schusters bought enough diesel to keep their business going through the winter. Few other Australians were as lucky, and now face the prospect of rationing.
On a sprawling property in south-east South Australia, Highlands farm, Corbin Schuster gathered his extended family together two days before the war over Iran began.
The sixth-generation farmer had been watching the US Navy converging on the region and was convinced Donald Trump was about to attack America’s great foe.
Eighty per cent of Asia’s fuel was supplied through the Strait of Hormuz, he told his relatives, and they should prepare for the worst.
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By continuing you agree to our Terms and Privacy Policy.The Schusters made a prophetic decision. They bought enough diesel to last until August, guaranteeing they will be able to plant and harvest winter crops, including what, barley, peas, lentils and hay.
If Prime Minister Anthony Albanese foreshadows petrol rationing in a televised speech tonight, most Australians won’t be able to rely on a 50,000-litre fuel tank in their backyard.
They will receive a 26¢-a-litre tax cut — and possibly other benefits in the budget. Either way, the energy crisis has exposed two unfortunate realities: America had turned into an unpredictable and unreliable ally and, faced with a crisis, the Albanese Government prioritises popularity over good economic management.
President Donald Trump’s latest insult to the world came on on Tuesday, Washington time, when he told countries suffering oil shortfalls to “build up some delayed courage, go to the Strait, and just TAKE IT”.
Secretary of State Marco Rubio later explained that the US, which has large gas reserves, doesn’t depend on Persian Gulf sea traffic. He said it was up to the rest of the world to decide how to resume normal shipping.
“So if in fact Iran decides to set up a toll, if in fact Iran decides that they’re going to illegally control the strait of Hormuz or decide they’re going to try to do that, look, I imagine that’ll be the President’s call — whether he wants to help,” Mr Rubio told Fox News.
“But this is a problem for the world. It is countries around the world (that) should be stepping up and dealing with that and saying that’s intolerable — and that’s what we’ve encouraged them to do.”
‘Dumb ideas’
The Royal Australian Navy is not preparing to sail for the Strait of Hormuz to break the blockade. Instead, the Government plans financial subsidies to soften the hit, budget watchers predict.
In addition to reducing petrol tax, rebates might be reintroduced for electricity bills, which is becoming more expensive to produce as coal and gas prices rise across Asia, according to Richard Holden, a University of NSW economics professor.
“The PM has never seen a problem he doesn’t think can be solved without writing a cheque,” he said today.
Professor Holden joined a chorus of expert condemnation of the petrol price cut, which disproportionally helps wealthier people, encourages driving and makes the budget deficit worse.
Even left-wing economists like Stephen Koukoulas criticised the policy. “More acute Dumb policy ideas need to be called out,” he wrote on social media this week.
Budget problems
The main problem worrying economists is not that regular Australians are hurting, financially. It is that they aren’t, or at least weren’t before the war.
The Reserve Bank of Australia and many independent experts believe the economy is growing too quickly, stoking inflation that is being made worse by rising oil, gas and coal prices. They don’t want tax cuts. They would prefer tax increases or less government spending.
The May 12 Budget is likely to contain the former, but not the latter. Higher liquified natural gas prices (up 70 per cent), coal (up 40 per cent from the start of the year) and inflation (which increases income tax revenue) are likely to produce what are known in Canberra-speak as revenue upgrades — more taxation in the future.
The extra money will make it easier to justify what the smooth-talking Treasurer, Jim Chalmers, may promote as responsible spending. Budget watchers expect him to raise some taxes too — possibly on investment property — to be able to proclaim he has fulfilled his promise of a reformist budget.
In the meantime, Dr Chalmers added to the sense of crisis when he held a press conference this morning with three business lobbyists: Bran Black from the Business Council of Australia, Simon Birmingham from the Australian Bankers Association and Skye Cappuccio from the small-business group COSBOA.
In addition to a promise the tax office will ease up on struggling businesses, Dr Chalmers said the banks would offer loan deferrals, changes to loan terms and emergency credit increases.
The first question he got was: Do you see a recession coming? Dr Chalmers did not answer directly. “From an economic point of view, this war can’t end soon enough,” he said. “But the consequences will linger for longer.”
RBA’s nightmare
Instead of helping the Reserve Bank bring inflation under control, Dr Chalmers’ spending makes its job harder, according to independent economist Chris Richardson.
“We seem to be on course for a phase in which the (government) is trying to boost demand at the same time that the RBA is trying to rein it in,” he wrote on social media today.
The major banks expect two or three more interest rate rises this year. For the Reserve Bank, which prides itself on minimising unemployment, the situation is a nightmare: accelerating inflation and slowing growth.
Even if President Trump effectively calls off the war during a speech on Wednesday evening, Washington time, analysts believe high oil prices will persist.
Westpac’s economics team today predicted the war would continue until the end of April and oil would average $US120 a barrel across March, April and May. Brent crude traded today around $US105 a barrel.
Americans are suffering from higher petrol prices too. The unpopular war could cost the Republican Party control of the Senate at elections in November, according to Michael Green, the chief executive of the United Studies Studies Centre in Sydney, threatening Mr Trump’s ability to implement his second-term agenda.
Running low
Australia has 30 days’ of diesel, 39 days’ of petrol and 30 days’ of jet fuel, the Government said yesterday. Despite what should be ample supplies, hundreds of petrol stations have run out and many industrial customers report long delays.
Energy expert Aidan Morrison said transport companies appear to be hoarding fuel waiting for prices to rise. If they were allowed to raise prices immediately — the government has threatened huge fines for price gouging — more fuel would become immediately available, he speculates.
He has spoken to desperate farmers who ordered 20,000 litres of diesel and received 3000 litres a week late. “The market can’t clear when prices are artificially supressed,” he said.
At Highlands Farm west of the Barossa Valley, the Schusters aren’t gloating. Although they have enough fuel, they did not foresee a fertiliser shortage. The cost of urea, a fertiliser input produced in the Persian Gulf, has risen from $750 a tonne to almost $1400 a tonne.
They have enough to cover their winter crops twice. After that, they are at the mercy of the ayatollahs.
“In the past what you want to buy is always there at a price you can afford,” Mr Schuster said. “That (urea price) adds a huge amount of cost to make the grain. Normally you would charge more for it. We are subject to global price and that hasn’t changed much at all.
“We’ll try and contact people we buy from. Everybody is in the same boat. Nobody is quite sure what will happen.”
