Australia’s high petrol prices face ‘long recovery’ to pre-war levels

Australian motorists are facing a prolonged era of high petrol prices even if the United States were to end the war in Iran tomorrow, as fuel companies and experts warn the damage to global energy markets has been so severe that it will outlast the conflict.

The cost of regular unleaded in Australia was averaging between $1.66 and $1.80 a litre earlier this year, but has surged more than 30 per cent since the war began on February 28 to hit unprecedented highs beyond $2.50 a litre.

US President Donald Trump has attempted to soothe worries about the soaring cost of living across the world by suggesting a US withdrawal from Iran would immediately deflate crude oil and fuel prices. “All I have to do is leave Iran, and we’ll be doing that very soon, and they’ll come tumbling down,” he said last week.

However, new warnings from the top levels of Australia’s fuel industry suggest even a swift resolution to the conflict would fail to bring petrol and diesel prices back down to their pre-war ranges for some time.

Scott Wyatt, chief executive of Viva Energy, one of Australia’s primary fuel suppliers and owner of the Geelong oil refinery, cautioned that the recovery of global energy markets would be a slow process.

“This recovery will have a long tail to it,” Wyatt said, pointing to the systemic and “serious disruption” to international supply chains that had occurred since the outbreak of the conflict.

While a shift toward peace in Iran would help unclog vital shipping routes for oil and gas tankers and drag prices down from historic highs, Wyatt warned that returning crude fields and oil refineries to pre-war production levels would be a massive undertaking. “It will take some time for those supplies to fully return to our region,” he said.

At the centre of the crisis is Iran’s effective shutdown of the Strait of Hormuz, which has disrupted up to one-fifth of the world’s oil shipments and choked off deliveries to the vast Asian oil refiners that supply the bulk of Australia’s liquid-fuel imports. Drone and missile attacks on key energy infrastructure in countries around the Persian Gulf have also forced the curtailment of huge volumes of global oil capacity due to damage or precautions.

Even once the Strait of Hormuz reopened, shipping traffic and energy flows would take “months” to return to normal, delaying the relief for motorists at the petrol pump, an executive at another Australian fuel supplier warned.

“Even if this conflict concludes in the next 10 days, there is still going to be a bottleneck that works its way through over the next few months,” they said.

The cost of shipping had also gone “through the roof”, the executive added, and the risk of traversing a recent war zone would keep maritime insurance premiums elevated for longer, inflicting further “knock-on effects” to the price of petrol and diesel.

MST Financial energy analyst Saul Kavonic expects it will take years to fully repair damaged Middle Eastern oil and liquefied natural gas (LNG) infrastructure, and for the world to refill emergency fuel stockpiles, which have been drawn down to buffer the global economy. He said there was “no going back to pre-war times” for the foreseeable future.

“Let’s imagine tomorrow Trump announces a comprehensive peace deal – the best-case scenario is it takes four to eight weeks to restart shuttered oil capacity, then it could take two years to refill stocks,” he said. “You can’t unscramble this egg.”

The magnitude of the current disruption has prompted comparisons to other major energy crises of the 20th century, including the 1973 Arab oil embargo and the 1979 Iranian Revolution. However, Shane Oliver, chief economist at AMP, said this year’s supply hit outweighed those earlier shocks already, meaning prices may take even longer to recover.

“This is a supply shortfall that is the biggest on record, swamping what happened in the ’70s,” he said.

“If you go back to the ’70s, the first oil shock took about four months for the four-fold rise in oil prices to unfold. The second one in 1979 took over a year.”

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