From Tokyo: In a region where energy security is never an abstraction, this weekend's events in the Middle East have delivered a jolt felt from the Persian Gulf to the Sydney bowser. The killing of Iranian Supreme Leader Ayatollah Ali Khamenei in a joint US-Israeli military operation has triggered fears of the worst oil shock the world has seen since the 1970s, and Australians are now counting the cost in cents per litre.
The Sydney Morning Herald and 7News both report that Australian drivers face potential petrol price increases of between 20 and 40 per cent in coming weeks, depending entirely on what happens at a narrow strip of water 21 miles wide at its closest point. The Strait of Hormuz, lying between Iran and Oman off Iran's southern coast, is the single most consequential chokepoint in the global energy system. According to the US Energy Information Administration, roughly 20 million barrels of crude oil and petroleum products pass through the strait daily, equivalent to about 20 per cent of global consumption. One fifth of global liquefied natural gas trade transits the same route, primarily from Qatar.
Energy analyst Saul Kavonic put the stakes plainly. "If things go badly in the Middle East, we could see our worst oil shock since the 1970s," he told 7News. That warning reflects the scale of what is now unfolding. Iran's Revolutionary Guard has broadcast radio warnings to vessels in the strait instructing them that passage is not permitted, according to a European Union naval mission official cited by Reuters. Several major oil companies and trading houses have already suspended crude and fuel shipments through the waterway, and supertankers are sitting idle in the Gulf of Oman, waiting to see what comes next.
The geopolitical context matters enormously for how this plays out. According to the EIA, more than 80 per cent of oil flows through the strait are destined for Asian markets, with China, India, Japan and South Korea collectively accounting for three quarters of the total. China alone receives half its crude imports via the Strait of Hormuz. For Australia's major trading partners in the Indo-Pacific, a prolonged closure would be catastrophic. For Australia itself, the exposure is indirect but real: domestic petrol prices are tightly correlated with international crude benchmarks, even though Australia does not import oil directly from Iran.
AMP chief economist Shane Oliver put the domestic arithmetic in stark terms, as reported by Capital Brief. If Iran's retaliation were to push crude above USD$100 per barrel, Australian drivers could expect to pay 40 cents per litre or more on top of current prices. The average national unleaded price was sitting at around 178.6 cents per litre before the weekend's events, according to Yahoo Finance Australia, meaning a worst-case scenario could push prices above $2.20 at the bowser. Barclays analysts warned Reuters that Brent crude could hit $100 per barrel given what one analyst described as the market having to face "its worst fears on Monday."
Those forecasting the most severe disruption acknowledge, however, that a complete closure of the Strait of Hormuz has never occurred in history, and would carry devastating consequences for Iran itself. Tehran earns critical revenue from oil exports routed through the strait; closing it would be, as one analyst put it, effectively shutting down Iran's own economy. Oxford Economics has estimated that a sustained Strait closure generating an 11 million barrel per day net supply impact would push Brent crude to around $84 a barrel in a moderate scenario, considerably less than the most alarming projections. Saudi Arabia and the UAE also have pipeline capacity to bypass the strait, though their combined alternative throughput of roughly 2.6 million barrels per day covers only a fraction of the volume at risk.
The political picture inside Iran adds a further layer of uncertainty. According to CNBC, Iran has named a three-member interim Leadership Council to manage the transition following Khamenei's death, comprising senior cleric Ayatollah Alireza Arafi alongside President Masoud Pezeshkian and Chief Justice Gholamhossein Mohseni Ejei. Iran's constitution requires the 88-member Assembly of Experts to choose a permanent successor. Whether that process produces a leadership inclined toward de-escalation or a more confrontational posture is the question oil markets are now pricing in at every tick.
For Australian policymakers, the challenge is layered. Deputy Prime Minister Richard Marles acknowledged the bowser impact was "inevitable" given rising global oil prices, while Treasurer Jim Chalmers has previously noted that a 10 per cent sustained rise in oil prices could add around 0.4 percentage points to Australia's inflation rate. The Reserve Bank of Australia, which only recently began easing monetary policy, will be watching the crude price trajectory carefully. As The Conversation has noted, a sustained fuel shock could delay further rate cuts and erode consumer confidence at a moment when household spending remains fragile.
Reasonable people can disagree about the strategic logic that led to this point: the strikes that killed Khamenei were in part a response to Iran's brutal crackdown on nationwide pro-democracy protests, in which thousands of Iranians died and tens of thousands were detained. The human stakes of that internal repression should not be footnoted away in a discussion of oil prices. At the same time, the economic consequences of a prolonged Middle East conflict will fall heaviest not on governments or analysts but on ordinary Australians filling their tanks, freight operators passing on costs, and businesses already absorbing years of inflationary pressure. The coming days, and the choices Tehran makes, will determine whether this weekend's events become a sharp but manageable spike or something that tests the global economy's resilience in a way it has not faced in decades.