Australia’s Hormuz problem runs deeper than diesel

Transit through the Strait of Hormuz is resuming, and in Canberra the crisis is being treated as contained. Prime Minister Anthony Albanese says (Opens in new window) Australia has more fuel reserves on hand now than at the beginning of the war. With a US–Iran memorandum reopening the channel, the emergency – the story goes – has passed.

Ignoring for now the shaky nature (Opens in new window) of the reopening, the more important point is quieter: the deeper damage is already setting in, and almost no one is watching it.

Start with the buffers. The reserves, spare capacity and just-in-time cargoes that softened the first shock have been drawn down across the system. That leaves every importer, Australia included, more exposed to the next disruption than to the first, which is why a half-open strait still matters. As The Asia Group’s analysis, No Safe Harbour (Opens in new window), puts it, there is no return to the status quo ante: the costs that compound sit deeper in the supply chain, and outlast the disruption itself.

Australia’s fuel exposure is real, but familiar. It imports almost no Gulf crude yet buys more than 80% of its refined fuel from Asian refineries that run on it; by one estimate (Opens in new window), about half its diesel traces back to oil that transits Hormuz. When tankers stopped, cargoes were cancelled and the government scrambled. Its response – billions for public reserves and a higher stockholding floor – is sensible, if years late (Opens in new window).

The latest Lowy Poll also illustrated strong support for more government investment in infrastructure to increase Australia’s emergency fuel reserves.

The signs of the deeper damage are already showing. The same chokepoint carries about a third (Opens in new window) of the world’s traded fertiliser and with Gulf plants idled, the World Bank’s fertiliser index has hit its highest since 2022 (Opens in new window). For Australia that is not abstract: winter wheat, a major export, needs both diesel and fertiliser, and both were squeezed at once. Fuel refills in weeks; an input-cost shock runs a full crop cycle.

The same pressure is reaching further. The Gulf supplies close to 44% (Opens in new window) of the seaborne sulphur trade, making it the bottleneck for both phosphate fertiliser and metals processing, and Chinese export curbs are tightening supply on top. When Hormuz closed, Indonesian nickel producers, who source three-quarters (Opens in new window) of their sulphur from the Middle East, warned of cuts. Australia’s next export story is critical minerals and clean energy, and the supply chains that build them run through the same chokepoint that just throttled its diesel.

That is the argument in short. Australia is treating Hormuz as a short-term fuel scare, but the slower impacts on agriculture, on critical minerals, on the clean-energy buildout are the ones that will reshape the economy. And they carry a paradox unique to its position: higher prices flatter Australia’s LNG and coal exports even as they raise the cost of building the critical-minerals and clean-energy industries meant to replace them. Resilience measured in “days of diesel” sees none of this.

The lesson is not “build more diesel storage”. It is that fuel, food and the minerals behind the energy transition now pass through the same narrow water and the same few suppliers. Australia has spent this crisis fixing the tank it could see. The harder task is the dependency it cannot.