Global oil chokepoint will show just how fragile our fuel security is

2026-03-06 - 17:07

The world woke up last week to a map that looks fundamentally broken. For decades, the Strait of Hormuz was a geopolitical ‘what if’, a narrow strip of water that everyone in every energy ministry on earth knew could bring the global economy to its knees, that no one quite believed would ever actually close. As of February 28, the ‘what if’ has become a ‘what now’. Following a massive joint military campaign by the United States and Israel against Iranian nuclear and military targets, which resulted in the death of Supreme Leader Ayatollah Ali Khamenei, the Strait has reached a state of functional paralysis. Iran has threatened but not formally blockaded anything. It hasn’t needed to. Even without a universally recognised formal blockade, war-risk insurance changes and operator-risk policies can sharply reduce traffic: if cover is withdrawn or premiums spike, commercial voyages may be delayed or rerouted. So, the ships have stopped. The vein has been pinched shut. The shockwaves are already washing over the shores of Australia and New Zealand, landing in bowsers, on supermarket shelves, in airline boardrooms, and in the portfolios of anyone who assumed we’d always find a way to keep the oil flowing. The geography that runs the world To understand why this matters for someone in Auckland or Sydney, you need to understand what the Strait of Hormuz actually is. It is approximately 33km wide at its narrowest point, but the navigable shipping lanes within it are even tighter: just 3.2km wide in each direction, separated by a 3.2km buffer zone. Nearly 10km of open water, and a fifth of the world’s global energy system flows through it. The Environmental Impact Assessment estimates oil flows through Hormuz averaged about 20 million b/d in 2024, with early 2025 similar: that’s about 20 percent of global petroleum liquids consumption and more than a quarter of global seaborne oil trade. The strait also carries about one fifth of global LNG trade. With commercial shipping at a near-standstill, Brent crude oil surged 13 percent within a day on March 2, briefly topping $82.37 a barrel, its highest level in over a year. For the average household in Sydney or Auckland, that translates to roughly 3-5 extra cents per litre at the pump within days. Analysts at Barclays and UBS have warned that a prolonged disruption could push Brent above $100-$120 per barrel, a threshold that would add a full percentage point to inflation in import-dependent economies like ours. What we aren’t talking about Australia and New Zealand both have official fuel reserve figures, which both governments have cited this week. Both figures deserve more scrutiny than they have received. In Australia, energy minister Chris Bowen told Parliament that reserves stood at 36 days of petrol, 34 days of diesel, and 32 days of jet fuel, the highest levels in 15 years. These numbers might sound reassuring, but Bowen didn’t draw attention to the fact the numbers include fuel still aboard ships within Australia’s exclusive economic zone: tankers still at sea. The official report of debates and proceedings in the Senate chamber from March 2 records opposition senators citing Department of Climate Change data putting onshore-only petrol at 26 days and diesel at 25 days, quite at odds with the headline figures. In New Zealand, the Minimum Stockholding Obligation, which came into force only in January 2025, requires importers to hold 28 days of petrol, 24 days of jet fuel, and 21 days of diesel onshore or in transit. The Ministry of Business, Employment and Innovation has confirmed that current stockholdings exceed the minimums. New Zealand also holds International Energy Agency ‘oil tickets’, paper commitments from the US, UK and Japan to supply emergency barrels should we need it. Paper tickets are a long way from a tanker full of oil. If the strait stays closed and those countries are simultaneously stressed, the tickets are worth less than they appear. Australia still has two refineries (Lytton and Geelong), though it imports a large share of refined fuels. New Zealand’s Marsden Point refinery was converted to an import terminal in 2022. There is no domestic backstop. Both nations are running a just-in-time fuel supply model, exquisitely efficient in a world of open sea lanes, and acutely exposed if/when the lanes aren’t open. The tourism double hit For Australia and New Zealand’s travel and tourism industries, the timing couldn’t be worse. Aviation is one of the most fuel-sensitive industries on earth: jet fuel typically accounts for 20-30 percent of an airline’s total operating costs under normal conditions. That share rises sharply when crude prices spike. The cost of fuel is only half the problem. The closure of Middle Eastern airspace has forced long-haul routes between Oceania and Europe to reroute around conflict zones, adding hours to journey times and burning more fuel per passenger. Carriers on those routes are facing a simultaneous surge in input costs and a logistical headache. New Zealand has spent three years rebuilding international visitor numbers after the pandemic, which makes the timing particularly painful. Northern Hemisphere visitors, from the UK, Germany, the Netherlands and France, are the most exposed to fare increases on the Europe-Auckland corridor. The autumn tourism season isn’t looking as it did a week ago. We need to talk about fertiliser Official statements have put Australia’s urea imports at around 2.4 million tonnes per year (for agricultural use). Australia imports nearly all its urea (the primary nitrogen-containing waste product excreted by mammals used for fertiliser) from the Gulf. Iran is cited as exporting around 10 percent of global urea exports, and other Gulf producers are also major suppliers. This makes shipping disruption and risk premiums relevant to fertiliser prices. Planting season is approaching. Farm input costs are about to rise, and they will eventually show up in the price of bread, pasta, and produce on supermarket shelves in Sydney, Melbourne, and Auckland. The ‘just-in-time’ trap Australia and New Zealand are thousands of kilometres from the Strait of Hormuz, so why are they so exposed? The answer is two decades of decisions that made sense at the time but quite suddenly don’t. Both countries dismantled domestic refining capacity through the 2010s and early 2020s, replacing it with import-dependent supply chains that are lean, efficient, and extraordinarily fragile. The economics were compelling: why maintain expensive domestic refineries when Singapore, South Korea and the Middle East could produce refined product cheaper? The answer, – the one that energy security analysts have been writing about, mostly unread, for a decade – is that efficiency does not equal resilience. The trucks that stock supermarket shelves run on imported diesel. The ambulances run on imported diesel. The tractors that grow the food and the ships that export it run on imported fuel. The just-in-time supply chain is a marvel of optimisation right up until the moment a Supreme Leader is killed and an insurance underwriter in London stops answering the phone. Both governments have emergency frameworks – Australia’s National Oil Supplies Emergency Committee, and New Zealand’s Petroleum Demand Restraint Act and National Fuel Plan – that could trigger rationing, priority allocation to emergency services, and demand reduction measures. Neither government has activated these frameworks or published a public drawdown scenario. But what is the plan for Day 30? And do we need to reset our fuel security settings that are optimised for the world we imagine, not the world we now live in.