Chapter 1: What is the main topic discussed in this episode?
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With Brent crude on track to end the month with the highest price rise in history, the Australian government is promising cost of living relief to motorists. But will its slashing of the fuel tax make a significant dent in your expenses? And will the pressure of higher oil costs in the US force Donald Trump to end this war? Welcome to ABC Business Daily.
I'm Carrington Clarke. And I'm the ABC's Chief Business Correspondent, Ian Verinder.
Always a pleasure, Ian. So we've seen some significant moves again in the price of energy. We mostly speak about Brent crude, the international benchmark, because it's the most relevant here in Australia. But the price of West Texas Intermediate passing 100 US dollars a barrel for the first time in 2022 at the end of the US trading session, this is psychologically important.
And do you think it potentially changes the equation for Donald Trump and might force him to find that almost mystical off-ramp that everyone's been waiting for him to find?
I think it's one of the key factors that would be influencing him. More importantly, I don't think it's just the price of West Texas Intermediate. It's the price at the bowser for American consumers. Prices have doubled, I think. They call it gas prices, we call it petrol, and it's continuing to rise. But yeah, that $100 a barrel benchmark price for West Texas Intermediate, well,
You know, it's great for all producers, but it's not very good for anybody else. And, you know, there's the petrol price. There's the prospect of much higher inflation in the States, just as here. And, of course, the cost of money. Interest rates are going to have to rise in America, and that's already happening on U.S. money markets.
Okay, let's try and break it down to the state of play, if you will, about what's happening on international energy markets, because that is kind of the starting point for a lot of these other pressures that are building. Let's look at what's happening in the Middle East directly. On one hand, Donald Trump is threatening to obliterate power plants.
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Chapter 2: What is the significance of Brent Crude's price rise?
And then you also have Iran making moves now to actually put a toll in place in the Strait of Hormuz, basically a type of Suez Canal situation where they're charging for ships to pass through. What do you make of all of what's going on at the moment and what does it mean for the cost of fuel for Australians and cost of fuel around the world?
Look, if it wasn't so serious and if there wasn't such a loss of life and disruption to global politics, it would seem like a farcical comedy, really, wouldn't it?
If it wasn't that we had so much experience now with Donald Trump, you would think that this was being made up. This was some sort of satire, given the type of language that he's using, as you say, to describe very dangerous and consequential actions.
Well, I mean, where does it go from here? What is the off-ramp? I can't see one unless he just backs out and tells the world that America won, America and Israel won. That's perhaps the only way that this can be resolved.
And he is a man who does still continue to claim that he won the 2020 election despite the fact that there is... Exactly. He has been known in the past... to take a win from an obvious loss. Maybe that will happen. But at this point, Iran does not seem to be playing by the rules of Donald Trump.
Well, you've got this situation where the US president is claiming total and utter victory militarily, and yet the Straits of Hormuz are closed. So 20% plus of the world's oil and gas supplies are locked up in the Persian Gulf. and can't get out without Iran's permission. And yet the president insists that he's won the war. And if they don't capitulate immediately, then he will obliterate them.
And whether it's infrastructure, whether it's, I can't see that there's any more military to knock out, but apparently there is. So, I mean, it's just a ridiculous kind of situation that continues to escalate. And we see Deadline after deadline just increasing. Now, this deadline actually runs out on Easter Monday.
So we've got hell breaking out on Easter Monday, which would seem to be somewhat contrary to the Christian ideals that the administration adheres to. So I can't see an easy out to this situation.
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Chapter 3: How will the Australian government's fuel tax cut impact motorists?
America is continuing to send troops into the area. And all the while, you know, you've got the Iranian leadership saying, we're not in negotiations. Nothing's been negotiated. And then trying to be just as funny as Trump is by saying, well, you're fired. And I mean, it's just inconceivable almost that this is actually taking place.
And what about the concept of Iran charging a toll for the Strait of Hormuz? There are precedents when a country has control of both sides of a waterway to be able to charge a fee for people to pass through that. Iran only has one side of this waterway, but it's managed to effectively close it by threats of attacking tankers.
And there's more reports coming through of strikes on a full Kuwaiti tanker in a port in Dubai. Do you think that is a situation post-war that Iran could get some sort of agreement in place that they're actually able to charge for the passage of ships through that narrow strait?
I think it used to be called highway robbery, didn't it? But in this case, possibly. I mean, there's... possibly an exit strategy for the us to say we will um pay you x amount of dollars to allow x amount number of ships through the straits and uh to guarantee that uh you know oil supplies are uh well, not maintained, I guess, but restarted and maintained for a certain period of time.
So that is a certain possibility. But whether or not America would accept that, it would then look as though America has lost the conflict and has had to pay its way out.
You've written an article talking about how this is the skyrocketing price of energy is feeding through to some of the higher end technology parts of the economy. And that, yes, there is an understandable focus on how this is affecting people when they go to fill up their cars. But this is actually hitting what are supposed to be the big drivers of the next boom of economic growth, aren't they?
Yeah, well, look, there's always unintended consequences when this kind of action takes place. And even when governments impose new economic policies, there's always something that comes out of left field.
And what's happening now is that in the lead up to this whole confrontation, you had a lot of angst within equity markets globally about the concentration of money that was flowing into America, into Wall Street, and not just into Wall Street generally into a handful of companies on Wall Street. The entire global stock market performance was based around seven companies. The magnificent seven.
That's right. And there's a few more of them in there now. But there was a lot of concern and consternation about what would happen if
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Chapter 4: What are the implications of rising oil prices for Donald Trump's policies?
And look, also, what you've got to do is look at this from another perspective. I mean, the price of fuel going up is a tax on household budgets. People don't want to spend more money on fuel. It's not like, I mean, I know you've got a massive V8 and you tear up and down the street doing wheelies and so forth.
You know me so well.
You're going to have to stop doing that.
We're giving a false, we just want to clarify, do you not want to give false impressions about Carrington's road use? But that is it's done for comedic and instructive purposes.
That's right. But, you know, so some people are going to have to change their behavior when it comes to driving, which is not a bad thing.
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Chapter 5: How do geopolitical tensions affect global fuel prices?
But, you know, we're not spending this extra money because we want to. It's being taken away from us. So it actually acts like a tax. So it is, in fact, reducing household spending on other things. which ultimately will lead to lowering in costs of other things and lowering of inflation.
But this is an incredibly powerful message that we're getting through to the economy and to our hip pockets, and we're going to have extraordinary responses as a result of that.
I just realized that I spoke about myself in the third person, so I apologize sincerely for that. I'm not sure when the last time I did that was. The government did feel like it was kind of forced into a corner on this issue. They seemed to rule it out previously, offering this type of relief, obviously decided they needed to do it. There is pressure on them to do even more.
But they are in a bit of a difficult bind, aren't they? Because on one hand, the government obviously wants to be seen as doing something, but they also don't want to risk doing so much that it actually causes people to panic even more. And this is where the messaging versus the practical... kind of sometimes comes into tension.
And we see the government talking about the fact that there is just as much fuel in Australia as there was at the start of this conflict. The ships are still coming. There might have been some forward orders that were interrupted, but we're able to source even more. And they don't want people going to their local station and filling up the jerry cans.
And they don't want farmers going filling up every bit of storage they've got, even though that can sometimes be a rational response if you think prices are going to continue to rise. But do you think they've got that line correct? And do you think Australians feel assured that the government does have this crisis in hand?
It's a hard one to answer, really, isn't it? Because it's a really tough path to try and navigate. You know, do you instill fear into the community and say, just be really careful about all of this and then actually create a situation that was worse than you originally started with? I mean, all you've got to do You know, there's a basic theory of economics about expectations.
And if we believe, if we expect something is going to happen down the track, we alter our behaviour so that it in fact does happen. You know, just cast your mind back to the pandemic. Somehow or other, everybody got it into their mind that there was going to be a shortage of toilet paper. Why? I don't know. Was there any, you know, drop off in toilet paper manufacturing? No.
Like fuel, toilet paper is something you don't want to get caught short of.
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