A looming fuel shortage could smash Australia – and no, it’s not petrol

It’s harvest time in Queensland. That means wheat, barley and chick peas heading for shelves and feedlots, and lots of diesel getting burned in harvesters, tractors and transport trucks.

It’s not a good time for experts to be warning the worst effects of the US war in Iran and Russia’s war in Ukraine may be yet to come.

You can see how badly the war is going in almost real-time – give or take a week or so – just by looking at the prices when you fill up with petrol.

But, as Darling Downs grain grower Brendan Taylor knows only too well, in Australia “diesel makes the world go round”.

“What we produce, all our machinery, trucks, tractors, harvesters – they all run on diesel,” the AgForce Grains president tells nine.com.au. 

“For us to do whatever we do, we rely on diesel, and we can't not use it. 

“And when the price of diesel goes up, it just makes whatever we do more expensive. So it just adds to our bottom line. It just adds to the cost of production.”

Oil prices have soared amid turmoil in the Middle East as Iran reacts to the US and Israel's February attacks by closing one of the world’s largest oil transport corridors and flinging missiles at military bases and refinery infrastructure in the region.

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More bad news: some of those hit the East-West pipeline Saudi Arabia has been using to try to get around the blockade in the Strait of Hormuz.

Meanwhile, Ukrainian drone attacks have hit Russian refineries, removing more of the global supply – even as US President Donald Trump tries to go around sanctions to do a deal for Russian diesel.

‘The toolbox is largely empty, leaving prices on the brink’

The US and Israel’s initial attacks on Iran sparked warnings of oil prices surging to $US150 or $US200 a barrel. 

Instead Brent crude peaked at almost $US140 – still double the pre-war price – as countries teamed up to flood the market with supplies from their stockpiles. 

But University of Texas Professor of Public Affairs Joshua Busby and Georgetown University School of Foreign Service Adjunct Professor Greg Pollock warn those stockpiles are now substantially depleted and it's not clear how much more oil they will be willing to release.

“The international community has already taken most of the measures available to curb oil demand and boost its supply,” they wrote in The Conversation at the end of last month.

“Those moves have reduced the scale of oil price increases, but they did not prevent them entirely. 

“Now, the toolbox is largely empty, leaving prices on the brink of spiking again.”

Oil flows out of the gulf have improved in recent weeks but uncertainty is still hammering shipments, keeping prices high.

The problem for Australia, and particularly farmers, is that the pain won’t end at the pump.

Australia’s transport network is heavily reliant on trucks, which run on diesel, meaning any price rise flows broadly through most of the economy.

Even before imported goods reach our shoes they have to travel by cargo ships, which also run on diesel.

Farmers have to swallow a lot of the cost increases without passing them on but even if only transport is taken into account, they’ve warned there could be price hikes at the supermarket.

“I sit on a couple of boards for my sins … and I'm seeing 20 and 30 per cent increase in trucking charges, which, if you're working in retail on a margin of, I don't know, 20 per cent gross, that's just unaffordable,” John Kochanski, the chief marketing officer for circular carbon economy company meOH Energy, tells nine.com.au.

“And that's going to impact – oh gosh – [everything to] shipping and coffee supplies. 

“It just literally, I would argue that you would have a hard time identifying any part of the economy that's not touched by diesel fuel.”

The fertiliser problem

Then there’s fertiliser. Before the war, Russia and Belarus supplied nearly a fifth of the world’s fertiliser. 

Another 30 per cent travelled through the Strait of Hormuz before the Iran war, according to the International Food Policy Research Institute.

Australia does not produce urea – the main ingredient in the most commonly used nitrogen fertiliser – and relies almost entirely on imports, prompting warnings of price hikes as far back as March.

While fertiliser is nice for a home gardener, it’s essential for large-scale food producers to increase crop yields.

“Having expensive fertiliser’s bad because that really puts pressure on your bottom line as from a production point of view,” Taylor said. 

“But having no fertiliser is catastrophic because your yields will fall by at least 50 per cent and then it all snowballs from there.”

He wants a return to local production – inexistent since Incitec Pivot closed its Brisbane fertiliser plant in 2022 – to help assure Australia’s food security.

His thoughts on fuel are similar. 

“If the ships stop coming for whatever reason, we haven’t got much up our sleeves,” he notes.

Energy Minister Chris Bowen’s weekly fuel supply announcements may not be the headline news they were at the start of the war but the margin for error remains relatively low.

In his latest update, the country had 41 days of petrol, 33 days of diesel and 28 days of jet fuel, including 48 ships on the way to our shores.

He said the government’s policy focus remained on “steady engagement with trading partners” in the Middle East and Asia, and working with Australia’s two remaining oil refineries to ensure they can produce fuel.

“Australians can take some confidence in the fact that now, well over six months into this crisis, despite the predictions of shortfalls and rationing by some in politics, and some people who said they’re experts, we’ve managed, in working with trading partners and with refineries, to see ongoing fuel supply in Australia,” he said.

Bowen said the government was also working on boosting the full reserve and moving towards low-carbon liquid fuels.

While we wait for the nation’s trucking fleet to electrify, Taylor wants to see more fuel refined in Australia to protect the country from global shocks.

“A fuel strategy is part of the food security strategy because if we run out of fuel –  like if we run out of diesel, if diesel becomes not only expensive but if we don't have it – well, Australia literally stops,” he said.

“Like everything runs on fuel. The trucks that run up and down the coast from the east coast, trucks going whichever way, delivering whatever. They all run on diesel.”

The importance of electrification

Transport emissions were about 21 per cent of Australia’s carbon emissions in 2022, according to the Climate Change Authority, with about a quarter of that coming from trucks and buses.

Humanity is losing more ground in the fight against climate change and heading for a hotter world than experts projected last year, a new United Nations report released this week says. 

If all countries do what they promise to reduce heat-trapping emissions, Earth will likely still warm another 1.2 degrees above current temperatures, it found, and US policy changes this year will likely add a tenth of a degree alone.

Australian climate scientist Bill Hare said an extra one-tenth of a degree pushes an additional 140 million people “into dangerously hot conditions” and increases the odds of the collapse of the Amazon rain forest or ice sheets in Greenland and Antarctica.

“[The US is going] hell-for-leather trying to block renewables while actively promoting and subsidising dirty coal — and its diplomacy is trying to make other countries also pull back on action,” he said,

“It is looking at the fire, denying there is a fire, and then pouring more petrol on it.”

- Reported with Associated Press