Updated 


Last weekend’s attack on Saudi Arabia’s biggest oil-production facilities is a stark reminder of the vulnerability of the world’s oil supplies.

Key points:

  • Official estimates put Australia’s domestic fuel reserves at about three weeks of typical use, but analysts say some companies could run out in a week
  • Australia imports around 90 per cent of its refined fuel needs, with most of that ultimately sourced from the Middle East
  • Transport companies want the Australian Government to dramatically increase domestic fuel reserves

More than 5 per cent of global supply was taken out by the drones and missiles that hit the Aramco facility in Abqaiq.

Fortunately, it proved a temporary hiccup, with the Saudis working quickly to get production back on track.

But a bigger threat lies ahead.

Saudi Arabia, egged on by the United States, is working overtime to point the finger at Iran, displaying fragments from missiles and drones which it said proved Tehran’s involvement.

Hard-line Republicans in the US are calling for war.

US President Donald Trump, the man who will make the final decision on that, has said the US is ready to attack but, for now at least, that will not be his first option.

An all-out war in the Middle East will do a lot more damage to the region’s oil infrastructure than a few missiles and drones, whether launched by Houthi rebels or Iran itself.

One week or three, Australia is low on domestic supplies

And Australia has a lot to worry about.

“If there was a major interruption, our supply chains and stockholdings of fuel are very small, and the Government doesn’t own any,” retired Air Vice Marshal John Blackburn told the ABC.

As a former number two in the Royal Australian Air Force, John Blackburn has conducted three studies of Australia’s fuel security, and is disappointed in what he has found.

“Australia’s fuel reserves are all about ‘just-in-time’ logistics delivery,” he said.

“It makes economic sense, but it’s not very resilient.”

Air Vice Marshal Blackburn claims Australia could be brought to its knees in a week if there is a major interruption to fuel supplies.

It sounds alarmist, but the Government’s own figures support his view on Australia’s vulnerability.

In its latest review of Australia’s liquid-fuel security, the Department of Environment and Energy found Australia had reserves of 18 days of petrol, 22 days of diesel and 23 days of jet fuel.

It said this was how long these stocks would last under normal use, adding, “the most appropriate measure of domestic fuel stocks is in ‘consumption days'”.

Air Vice Marshal Blackburn said, when he did his reviews of fuel security, he found that most companies that are heavy fuel users had very small supplies.

He said generally a week or less.

That works when fuel deliveries keep arriving, but a Middle East war could change that.

Australia dependent on Middle East for fuel supplies

Australia imports the equivalent of around 90 per cent of its refined fuel needs. This includes finished products such as petrol, as well as oil which Australia’s four remaining refineries turn into finished product.

And this is where the current geopolitical tensions come into play.

Australia’s biggest sources of refined products are Korea, Singapore, Japan, Malaysia and China.

Where do they get their oil? Most of them get it mainly from the Middle East.

Source of refined product % of oil from Middle East
Singapore 88
Japan 87
South Korea 81
Malaysia 42
China 30

Source: Department of Environment and Energy

A war in the Middle East that stops the oil tankers is going to have a huge impact on the vast majority of Australia’s petrol, diesel and jet fuel imports.

Air Vice Marshal Blackburn accuses the Australian Government of being negligent.

“It doesn’t own stocks in the country, it doesn’t mandate minimum stock levels maintained by industry, like most other developed countries,” he said.

“We are just basically at the mercy of the market. And you’ve got to remember, most of the oil companies we deal with are foreign owned.”

Other countries are better placed to cope.

For example, the United States Government has 700 million barrels of fuel in storage, which, it is estimated, could keep the country ticking over for six months, albeit with heavy rationing.

The Australian Government is negotiating with the US to access some of those reserves if worst comes to worst.

“The idea that we’re going to pay the United States for part of their stocks held in caverns in Louisiana is something that would help us address our IEA obligations, but that’s not there for our domestic security in Australia,” scoffed Air Vice Marshal Blackburn.

Under those International Energy Agency (IEA) obligations, Australia, like many other countries, is expected to hold 90 days of net fuel imports in reserve.

In its most recent assessment at the end of last year, the Department of Environment and Energy put the actual level at 53 days.

However, as Air Vice Marshal Blackburn alluded to above, the IEA formula can include fuel not in the country, such as about two days’ supply being held for Australia in the Netherlands.

It does not include fuel or oil on boats.

Transport industry wants Government action

His views are supported by the transport industry, which is the biggest user of fuel, accounting for 75 per cent of consumption.

“This is a massive issue,” Geoff Crouch, chairman of the Australian Trucking Association, told the ABC.

“If we are going to have sufficient to meet the Australian demands at a local level at a time of crisis, we need those reserves on Australian soil, not US soil.”

Mr Crouch said the ATA had been urging the Government since 2014 to dramatically increase Australia’s fuel reserves, but to no avail.

The last time Australia had fuel rationing on a national level was during World War II.

Seventy years on, a new war in the Middle East could see long queues at the bowser again, if supplies do not run out altogether.

Topics: oil-and-gaseconomic-trendstradeworld-politicsunrest-conflict-and-waraustraliasaudi-arabia