Strait of Hormuz Crisis — Impact Analysis

5 March 2026  |  Prepared using Opus 4.6

Executive Summary

On 28 February 2026, the United States and Israel launched coordinated strikes on Iran. Iran retaliated with missile and drone attacks across the Gulf and effectively closed the Strait of Hormuz — the corridor through which 20% of global oil transits daily. As of 5 March, commercial shipping through the Strait has ceased, war-risk insurance has been withdrawn, and major carriers including Maersk and Hapag-Lloyd have suspended all Gulf operations.

Australia imports over 90% of its refined fuel, primarily from Asian refineries that process Gulf crude. The government holds 34 days of diesel, 36 days of petrol, and 32 days of jet fuel. These figures include fuel on ships within our exclusive economic zone — not just fuel on Australian soil. We are the only IEA member nation that has consistently failed to meet the 90-day stockholding requirement since 2012.

This assessment concludes that there is an 80% probability the disruption exceeds one month and a 35% probability it exceeds three months. In either scenario, Australia faces fuel rationing, agricultural disruption, mining curtailment, and significant economic damage.

Current Situation

The Strait of Hormuz is not legally closed but is operationally shut. Iran’s IRGC has confirmed the closure and threatened to set ablaze any vessel attempting transit. At least five tankers have been struck, two crew members killed, and over 150 ships are stranded outside the Strait. Multiple insurers have cancelled war-risk coverage effective 5 March, making commercial transit economically impossible regardless of military conditions.

Simultaneously, Houthi forces have announced resumed attacks on Red Sea shipping, compromising the alternative Suez Canal route. Major container lines have suspended trans-Suez sailings. The only remaining open route from the Gulf is via Saudi Arabia’s East-West pipeline to the Red Sea port of Yanbu (5 million bpd capacity), and the UAE’s pipeline to Fujairah (1.8 million bpd). Combined, these can replace roughly 13% of normal Hormuz flow, and both have infrastructure constraints limiting actual throughput.

Why Australia Is Uniquely Exposed

1. Illusory Supply Diversification

Australia’s refined fuel comes primarily from South Korea (27%), Singapore (26%), Japan (15%), and Malaysia (10%). This appears diversified, but these refineries process Gulf crude that transits Hormuz. Singapore’s mega-refineries source approximately 80% of their crude from the Middle East. A Hormuz closure doesn’t just affect ships heading directly to Australia — it chokes the refineries that actually supply us.

2. Two Refineries, Both on Life Support

Australia operates just two refineries: Ampol’s Lytton (Brisbane, 109,000 bpd) and Viva Energy’s Geelong (120,000 bpd). Both receive government subsidies through the Fuel Security Services Payment, expiring in 2027. The Energy Minister has stated these are supplied with feedstock until approximately May 2026. After that, new supply must be secured in a global seller’s market.

3. Diesel Dependency Beyond Transport

Australia uses more energy from diesel alone than from electricity. Diesel powers the Pilbara iron ore operations (hundreds of millions of litres annually), long-haul freight (which delivers 99% of domestic goods), agricultural machinery during time-critical seeding and harvest windows, emergency generators for hospitals, water treatment, and remote communities, and backup power for telecommunications infrastructure. Modern diesel trucks also require Diesel Exhaust Fluid (AdBlue) made from imported urea. Without DEF, trucks physically cannot run. Domestic DEF manufacturing is not expected online until mid-2027.

4. The US Strategic Reserve Is a Paper Asset

Australia stores approximately 1.7 million barrels of crude in the US Strategic Petroleum Reserve under a bilateral agreement. This represents less than two days of national consumption. The crude requires 35 days of shipping to reach Australia, and then must be refined — but our two refineries are not optimised for the crude grades stored in the SPR. In a scenario where the US is itself at war and managing its own energy crisis, the likelihood of priority shipping to Australia is low.

5. No Alternative Supply Queue Position

In a sustained closure, every major Asian economy competes simultaneously for non-Gulf oil. China (the world’s largest crude importer), India (60% Middle East dependent), Japan, and South Korea all have larger purchasing power, state-owned oil companies, and established supply relationships with alternative producers in West Africa, the Americas, and Russia. Australia procures fuel through private market mechanisms with no sovereign oil company and no preferential supply agreements beyond the SPR arrangement.

Scenario Analysis

Scenario	Duration	Prob.	Key Characteristics
A	1–3 weeks	20%	US forces reopen Strait with convoy escorts. Insurance cautiously resumes. Price spike but manageable within existing reserves.
B	1–3 months	45%	Iran sustains coastal threat via hardened tunnel networks. Insurance remains frozen. Asian refinery feedstock drops. Australia exhausts diesel reserves. Rationing required.
C	3+ months	35%	Prolonged conflict with external support to Iran. Global energy system restructures. Australia faces severe economic contraction, mining curtailment, agricultural disruption.

Combined probability of disruption exceeding one month: 80%. This is the central planning assumption.

Cascade Timeline for Australia

Days 1–14: Price Shock

Diesel at the bowser spikes past $2.50/L toward $3+. Panic buying begins despite government messaging. Mining companies draw down on-site reserves. Freight surcharges applied immediately. Fresh food prices begin rising in regional areas.

Days 14–28: Allocation Pressure

Government activates emergency fuel allocation frameworks. Agriculture vs. mining vs. defence vs. freight become political allocation decisions. Seeding or harvest windows that farming depends on do not wait. Supermarkets hold approximately 10 days of dry goods and 7 days of frozen. Hospitals hold 3 days of essential drugs.

Days 28–42: Operational Curtailment

Diesel reserves exhausted under normal consumption. Pilbara operations begin scaling back. Regional and remote Australia experiences acute shortages — thin supply chains with no redundancy. Iron ore export curtailment begins affecting federal revenue. Freight costs make food distribution economically unviable in remote communities.

Days 42+: Systemic Stress

If no alternative supply established, mandatory rationing across all sectors. Potential food distribution problems. Significant GDP contraction. Defence fuel needs compete with civilian needs in a scenario where Australia may be supporting allied operations. Economic recession becomes probable.

Structural Vulnerabilities and Missing Responses

Australia has been warned about fuel security by defence analysts, the IEA, and industry bodies for over a decade. The structural responses that would make a material difference — dramatically expanded onshore storage, retained refining capacity, a strategic shipping fleet, domestic urea production, and genuine 90-day reserves — are all slow, expensive, and were not implemented. Increasing national diesel coverage by five days would have required approximately A$285 million in additional inventory. Every analyst who has examined this has reached essentially the same conclusion. The current crisis was foreseeable and foreseen.

Conclusion

Australia’s fuel security position is the product of three decades of optimising for efficiency over resilience. We export our own crude because it’s more profitable, import refined product because it’s cheaper, hold minimal reserves because storage is expensive, and closed ten of twelve refineries because Asian competitors undercut them. Every one of those decisions was rational in a world where ships always sailed and straits never closed. That world ended on 28 February 2026.

The question for Australian policymakers is no longer whether a fuel crisis is possible. It is whether the government has the frameworks, authority, and political will to manage rationing, allocation, and economic disruption at a scale not seen since World War II — and whether those frameworks can be activated before day 35.

—

Sources: Australian Department of Climate Change, Energy, the Environment and Water; International Energy Agency; US Energy Information Administration; Windward Maritime Intelligence; CSIS; Brookings Institution; Kpler; CNBC; Al Jazeera; parliamentary statements by Energy Minister Chris Bowen (3 March 2026). Analyst assessments drawn from published interviews with Prof. Seyed Marandi (Tehran University), Scott Ritter, Col. Douglas Macgregor, and Brookings/CSIS panels. All probability estimates are the author’s synthesis and should be treated as informed judgement, not prediction.