The Middle East conflict is causing huge disruptions to energy supplies, with knock-on effects reaching far beyond petrol prices. While the initial US-Israeli strikes on Iran drew a muted response from global markets due to expectations it would be a short conflict, there are now questions over whether the US has a clean exit strategy that would guarantee a stable resumption of trade through the crucial Strait of Hormuz. Here are five ways the "largest supply disruption in history" in global oil markets is affecting Australia, from the cost of crucial imported goods to the purchasing decisions made by consumers.
Electrified Sales
The shift to electrified vehicles was already underway before the Iran war disrupted energy markets, but the conflict has accelerated this trend. New battery vehicle sales in Australia are nearly double those from a year ago, according to February automotive data. James Voortman, CEO of the Australian Automotive Dealer Association, notes that car yards have seen a surge in EV sales since petrol prices began rising. This increase is attributed to the higher petrol prices convincing some fence-sitters to make a purchase decision. The Tesla Model Y and BYD Sealion 7 are the top-selling EVs in Australia, and hybrids or EVs now account for about one-third of new car sales.
Mortgage Pain
Oil prices, the primary driver of global inflation, are expected to rise faster than previously forecast, leading to higher interest rates. The ASX's rate tracker suggests a 66% chance of a rate hike on Tuesday, a significant increase from the 22% probability a week ago when the conflict seemed shorter. Australia's big four banks predict two rate hikes in March and May. This will result in higher monthly mortgage repayments for homeowners, with an $800,000 debt incurring an additional $363 by May. However, the longer-term rate outlook is uncertain, as an escalation in the conflict could harm the Australian economy, potentially leading the RBA to cut rates in the future.
Deliveries, Flights, and Dining
Almost all forms of travel and freight are becoming more expensive, with costs ultimately passed on to consumers. Australian businesses are bracing for another wave of freight cost increases as road transport operators confirm fuel levy hikes, and more carriers across ocean and air freight are expected to follow due to rising global diesel and jet fuel prices. Jet fuel prices have reached levels not seen since the Russia-Ukraine invasion in 2022. This is affecting air fares and parcel deliveries, with airlines like Cathay Pacific, AirAsia, and Thai Airways joining Qantas and Air New Zealand in hiking prices. Travellers are opting for stopover destinations in Asia rather than the Middle East, further impacting the industry.
Plastic Recycling
The cost of plastic is closely tied to rising global crude prices, as resins used in packaging materials are oil derivatives. Australia's heavy reliance on imported plastic (over 90%) means that any persistent oil market disruption will likely lead to higher costs for manufacturers, which will be passed on to food producers and retailers. This could make recycled plastic a more appealing alternative for Australian businesses, as the industry currently considers it prohibitively expensive. However, the cost difference between imported and recycled plastic is significant, and a sustained long-term increase in oil prices could change this dynamic.
MRIs and Helium Balloons
Australia imports helium, an industrial gas used in MRI machines and other critical medical, research, and manufacturing technology, from Qatar, which produces around a third of the world's helium as a byproduct of liquefied natural gas. The conflict has led to a halt in Qatar's liquefied natural gas production, and the government is monitoring helium supply. While the immediate impact on helium availability in Australia is uncertain, the country's only helium plant in Darwin closed in 2023, and a new company, Natural Helium Tasmania, is expected to start operations in 18 months. Helium's importance extends beyond party balloons, as it is used in various industries, including phone manufacturing.
In conclusion, the Middle East conflict has far-reaching consequences for Australia, affecting everything from energy markets to consumer purchasing decisions. The disruption in the Strait of Hormuz raises questions about the stability of global trade and the potential impact on the Australian economy. As the conflict continues, the country must navigate these challenges and adapt to the changing landscape of global markets.
