From Dubai, the Middle East conflict that erupted on 28 February has a distinctly different character than many Western observers recognise. The dynamics at play here are more complex than headlines of regional warfare suggest. Iran's announcement closing the Strait of Hormuz, Qatar's forced halt to LNG production following drone strikes, and the subsequent declaration of force majeure on gas shipments have triggered what the International Energy Agency describes as the largest energy supply disruption in modern history.
For Australia, the immediate picture is contradictory. As an LNG exporter, higher prices should benefit the nation. Woodside Energy's Scarborough project, targeting first LNG cargo in late 2026, enters a market where liquefied natural gas prices have spiked 12 per cent since hostilities began. Higher global prices mean higher export revenues, potentially softening the blow Australia would otherwise face from this crisis.
Yet this masks a critical vulnerability. The Westpac economist analysis released this month reveals the household-level reality: petrol prices could rise by 25 cents to $1 per litre. Inflation could spike 1.5 percentage points if the disruption persists for three months. The Reserve Bank has already responded by accelerating rate rises to 4.35 per cent, adding roughly $90 monthly to a typical $600,000 mortgage.
Australia's government response illustrates the policy challenge. The $12 per gigajoule price cap on domestic wholesale gas contracts, introduced to shield east coast consumers, is a reasonable defensive measure. But it is fundamentally a patch, not a strategy. It assumes the disruption will be temporary, the price cap will hold, and markets will eventually normalise. None of these assumptions can be guaranteed.
What this conflict exposes is the core tension in Australian energy policy. We are simultaneously dependent on global markets and exposed to shocks originating thousands of kilometres away, in regions where geopolitical volatility is high and our influence is limited. The government cannot control OPEC decisions, Iranian policy, or Qatari production schedules. It can only manage the damage domestically.
The Strait of Hormuz closure blocks roughly 20 per cent of global LNG supply. Australia has no capacity to fill that gap quickly. The Scarborough project will add productive capacity, but not until late 2026 at the earliest, and only incrementally thereafter. Meanwhile, Australian households absorb price shocks transmitted instantly through global markets, regardless of whether they directly consume Middle Eastern energy.
Reasonable people can disagree on whether Australia should pursue greater energy self-sufficiency, international diversity, or accept the volatility as a cost of being integrated into global markets. But this current moment offers clarity: the price cap is real relief, but it is temporary. The export revenue boost is real, but it does not compensate households facing higher bills. Ultimately, Australia's energy security depends on policy choices made now about long-term diversification, not on hoping geopolitical disruptions remain brief.