Iran rejects Trump’s peace plan, makes counteroffer over Strait of Hormuz; petrol prices at record high

Garbage companies have warned waste collections may be cancelled as trucks run short. Hundreds of gas stations are out of at least one type of fuel. Farms have postponed crop seeding because their tractors can’t be refilled. Truckers are getting stranded at drained outback filling stations. Charter fishing boats operating out of Sydney Harbour face squeezed margins. The government is dismissing talk of rationing, but has relaxed safety regulations to draw more supplies in from overseas. The market looks worryingly tight.

For all that, you can blame decades of complacency and misguided subsidies. Other countries shouldn’t assume they’re immune. Fuel shortages are already prompting talk of emergency conditions in the Philippines and South Korea, while the knock-on effects in Australia could hit global supplies of food and raw materials.

Some of this diesel dependency is close to inevitable. Mining is a voracious consumer of the fuel, where it’s a versatile power source for the energy-hungry trucks and machinery used at remote work sites. Farmers use it to power their harvesters, tractors and pumps for similar reasons.

Part is just geography. Australia has a population not much greater than that of Florida, spread across a continent almost as big as the entire US. As a result, an outsized trucking industry hauls goods on two-, three-, or even four-trailer road trains between major cities that are rarely much less than 1000 kilometres apart.

Bad policy has made the problem far worse than it should be, though. Despite some of the world’s biggest reserves of coal and natural gas, Australia is an insignificant oil producer, and depends on imports from Asia for about 90 per cent of its diesel. Stockpiles are currently sufficient for just 30 days. That’s the lowest among members of the International Energy Agency, which requires at least 90 days of inventory. With the Strait of Hormuz closed and major suppliers China, Japan and South Korea limiting exports to prevent local shortages, that’s left Australia’s safety net looking distinctly threadbare.

Things would have been far better if successive governments hadn’t spent years incentivising wasteful consumption. Industrial users get tax rebates to cover the cost of their diesel usage, a program that’s grown to become one of the biggest drains on the budget. The federal government will spend $10.8 billion on diesel rebates in the current fiscal year, more money than goes to the army or navy, and almost as much as is spent on public education.

That windfall acts as a financial brake on attempts to decarbonise. Other countries are surging ahead.

It shouldn’t take an energy shock for Australia to see how far it has gone wrong with its dependence on dirty, costly, insecure diesel. If the current alarm helps change that short-sightedness, it won’t have come a moment too soon.

Bloomberg