Chapter 1: What is the doomsday scenario for fuel supply?
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Everybody's talking about fuel. Whether you're in need of filling up the tank for the week and you're watching the dollars tick over at the bowser, or you're watching weekend plans, holiday plans, business plans change. To help get your head around the latest, you can find Fuelcast in the ABC Business Daily feed, on ABC Listen, or wherever you get your podcasts.
What does Donald Trump's blockade in the Strait of Hormuz mean for our fuel supply? Well, it's not great. Today, Sol Kavanagh, energy expert at MST Financial, on why we're facing a doomsday scenario that's been war-gamed for decades. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily.
Donald Trump says the US military's blockade of ships entering or departing Iranian ports has begun. The Prime Minister is returning to Southeast Asia this week, travelling to Brunei and Malaysia in an effort to secure ongoing fuel and fertiliser supplies amid the global energy crisis.
In a fiery social media post, Donald Trump threatening to blow to hell any Iranian vessel who fires at us or at peaceful vessels and warning that no country who pays a toll to Iran will get safe passage.
We can't let a country blackmail or extort the world because that's what they're doing. They're really blackmailing the world. We're not going to let that happen.
So the blockade threatened by Donald Trump is now in place. So we're going to consider what that means for us and our fuel supply. This will make the oil crisis worse, won't it? At least in the short term.
Well, that's right. So basically, the oil market is now rewound to before the ceasefire and Trump's bombastic ultimatum was made.
So we're back on an escalatory pathway for the conflict and for oil markets, except this time with Trump's blockade of Iran, the remaining one to two million barrels of oil that was still coming out of the strait, which was the Iranian barrels, that's now going to be stopped as well via the blockade. So it's taken an extra one to two percent off the global oil markets. Right now, there's no
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Chapter 2: How does the US blockade in the Strait of Hormuz affect global fuel supply?
And I think back during COVID, it was the more developed economies like Australia, which did the harshest lockdowns. Whereas now, more developed economies like Australia, we actually have a greater ability to pay for fuel. So we'll actually fare relatively better compared to more developing economies who can't pay, and they're actually going to go without even more.
All right, well, Seoul, Iran has promised to retaliate. It says no port in the Persian Gulf and the Sea of Oman will be safe. Now, these are all big oil producing areas, aren't they? So it's a pretty serious and rather scary threat.
So what's most worrying now for oil markets is if this blockade develops into the conflict restarting and Iran directly attacking oil infrastructure and oil export infrastructure like ports, which they've threatened to do. And the reason for that is, is if you start to see more successful attacks on oil export infrastructure,
What it means is even after the war ends and the Strait of the Moors opens up, that will take months or even years to repair. So we end up with a shortage of oil that will last much, much longer than the end of the war.
And that is actually a much scarier scenario for oil markets than just a short-term temporary disruption to the Strait of the Moors, which could open up readily again once the conflict is resolved one way or another.
Okay, so the world's supply of oil is under great threat. So let's have a look now at what that means for supply here. The Prime Minister, Anthony Albanese, he's in Asia trying to shore up supply in Brunei and Malaysia this week, Singapore last week.
Australia, of course, is at the front of the queue because of the strong relationship that we've built up with Singapore. But we live in very uncertain times.
And just noting that supply from Singapore for us is particularly vital, isn't it?
It is. Singapore is a major refining hub. They refine much more oil than they need domestically. And so what the government needs to do here is to make sure that that fuel is available for us to buy because we are approaching crunch point now where up until today we're still living off the oil that left the Strait of Hormuz before the war began. That's about to dry up.
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