The Institute for Energy Economics and Financial Analysis (IEEFA) reveals that Australia is exposed to price rises due to its reliance on imported oil products and the link between domestic and international energy prices.
With escalating tensions in the Middle East, alongside recent reports regarding Iran’s parliament voting to close the Strait of Hormuz, global attention has shifted towards energy prices.
The strait lies between Iran and its Gulf Arab neighbours and is used to transport about 20 million barrels of oil per day — equivalent to 20% of the global daily oil consumption.
The University of Sydney reports that 15% of Australia’s crude oil and 5% of petroleum products are imported from Middle Eastern countries, including Saudi Arabia and the United Arab Emirates.
Meanwhile, 30% of Australia’s refined oil transits through the Strait of Hormuz.
At the end of May 2025, oil prices increased from US$64 per barrel to US$78 per barrel as at 23 June. The IEEFA says some analysts forecasted prices to exceed US$100 per barrel if tensions further escalated.
Due to Australia’s own production decline, the nation currently imports 90% of its oil requirements. In 2024, Australia spent more than $55 billion on petroleum product imports, with the annual bill reaching $65 billion in 2022 following the invasion of Ukraine.
The IEEFA adds that Australia has thin stockpiles with 31 days of petrol stocks and 26 days of diesel stock. This is considered well below the International Energy Agency’s recommended level of 90 days of stock.
Further, domestic gas prices are closely linked to global energy prices.
Australia is among the world’s largest liquified natural gas (LNG) exporters, accounting for 81 million tonnes of LNG exports in 2022-23, as reported by the Department of Industry Science and Resources.
The IEEFA says the magnitude of exports compared to the domestic market has linked eastern Australia’s gas prices to international prices, as observed by the Australian Competition and Consumer Commission.
Australia’s opportunities to insulate itself
Despite these risks, the IEEFA says there are various ways in which the nation can protect itself from global energy price spikes by accelerating the energy transition.
Accelerating the shift to renewables reduces the influence of gas and coal prices on wholesale electricity prices. The IEEFA says wind and solar generation, as well as battery discharging, are setting the wholesale electricity price more often and at lower levels than other forms of generation, reducing the influence of gas and coal generators.
Meanwhile, Australia can also provide greater incentives to prioritise the domestic gas market over LNG spot sales.
The IEEFA says higher international LNG prices create strong financial incentives for pursuing sales on the spot market, which can exacerbate gas market tightness.
In 2021 and 2022 for example, when LNG prices rose, Queensland became a net importer of gas from the southern states, when it usually is a net exporter.
The IEEFA highlights that an export tax on spot sales of LNG could alleviate those issues.
“In these turbulent times, it is time for Australia to look more seriously at how it can improve its energy security and better insulate itself from global energy shock,” the IEEFA says.
Write to Aaliyah Rogan at Mining.com.au
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