Australia's economy faces a shock wave. The average price of unleaded petrol and diesel has risen past $2 a litre in all major cities, sending ripples through agriculture, transport, and retail. Within weeks, households will confront the real cost of global instability: higher grocery bills.
The culprit is clear. Jet fuel prices, which were $85-$90 per barrel before US-Israel strikes on Iran, have risen to $150-$200 per barrel in recent days. The Strait of Hormuz, which handles approximately 20 per cent of global oil supply and nearly 20 per cent of the world's daily jet fuel, has effectively ground to a halt. Australia, which imports roughly 90 per cent of its liquid fuel, cannot insulate itself from this disruption.
The food price shock centres on Australia's farm sector. Diesel prices in some capitals have reached as high as 230 cents a litre, making operations unaffordable for producers already stretched thin. Many Australian farmers rely on ad hoc deliveries rather than long-term contracts, leaving some struggling to secure fuel at predictable prices. In one case documented by rural leaders, a farmer locked in 27,000 litres at $1.70 per litre only to be told the price had jumped above $2 per litre.
Cattle grazier John Lowe said the uncertainties had come at a terrible time for many producers as diesel prices in some regions jumped about 40c per litre. The timing compounds the damage: farmers were finally receiving rain after a dry summer, clearing the path for planting. Now uncertainty prevails. Rising diesel and fertiliser costs increase the cost of producing food, and those higher costs will flow through to grocery prices for Australian households.
The government has moved cautiously. Energy Minister Chris Bowen said the country remained above its minimum fuel stockholding levels and warned companies against exploiting the crisis, noting that Australia's fuel pricing follows global markets, but this is an international crisis, not a commercial opportunity. Yet Bowen also cautioned industry to ensure farmers and smaller businesses could access the fuel they need.
The counter-view holds weight. Some argue panic buying has worsened shortages. Consumers are being urged to avoid panic buying, which is exacerbating supply problems and leading to spending limits at some service stations. One fuel industry association said stock depletion in certain areas has been quickly replenished. But the political opposition disputes this narrative. Nationals leader David Littleproud said farmers were already struggling to secure forward fuel contracts at agreed prices and obtain supply quotes, and that farmers cannot get the fuel they need in regional and rural areas right now, which is placing enormous pressure on the agriculture industry.
Aviation faces its own crisis. Jet fuel prices have surged by up to 150 per cent over the past fortnight, and Qantas will increase international airfares this week as volatility in global jet fuel markets continues to rattle the aviation sector. Air New Zealand said it had raised one-way economy fares by NZ$10 on domestic routes, NZ$20 on short-haul international services and NZ$90 on long-haul, with more adjustments to prices and schedules possible if jet fuel costs remain elevated.
The Australian Competition and Consumer Commission has acted. The consumer watchdog has put retailers on notice about giving false or misleading reasons for cost increases. The ACCC is examining international and domestic fuel price movements and market behaviour to ensure retailers comply with consumer protection laws.
What happens next depends partly on the Middle East conflict itself. Analysts say petrol prices could jump by around 40c a litre, meaning the cost of filling a 60-litre tank would rise by about $24. Transport costs, which dominate food delivery, will increase accordingly. Fertiliser imports will follow suit. The farm sector's profit margins, already compressed by years of cost pressures, will compress further.
Australians face a genuine policy tension. The Reserve Bank of Australia must weigh inflation risks against demand destruction as households cut spending in response to higher fuel and food costs. The government must balance warnings against corporate opportunism with respect for market mechanics it cannot override. And farmers, caught between global commodity prices and local supply shortages, must make planting decisions on incomplete information.
None of these dilemmas have easy answers. Australia cannot redirect the Strait of Hormuz traffic or reverse the US-Israel offensive. Fuel retailers cannot conjure supply from thin air. But the next few weeks will test whether Australia's institutions can manage a crisis born thousands of kilometres away, and whether consumers' patience holds as the shelves gradually empty and prices climb.