US and Israeli strikes on Iran, and Tehran’s retaliation, have triggered the most significant disruption to global energy markets in years. Oil and gas facilities across the Middle East have been shut down, shipping through the Strait of Hormuz has slowed to a near halt, Brent crude has surged past US$79 a barrel, and insurance companies have begun cancelling war risk coverage for vessels in the Gulf, with at least four tankers damaged and 150 ships stranded.
For independent service station operators across Australia, the natural question is: what does this mean for my business?
Over the past week, we’ve spoken to people across the fuel supply chain, from senior executives with decades of experience in downstream petroleum through to distributors and independent operators on the ground, to put together a practical picture of what’s happening and what it could mean for your site.
How secure is Australia’s fuel supply?
Australia’s geographic position has traditionally been a strength when it comes to fuel supply. Unlike countries dependent on a single supply corridor, we can source crude oil and refined product from multiple directions: North and South Asia, the United States, the Middle East, Europe, and Africa. When one source is disrupted, global oil traders typically reroute cargo from alternative origins, with pricing adjusting to facilitate that movement.
Energy Minister Chris Bowen confirmed in parliament this week that Australia holds 36 days of petrol reserves, 34 days of diesel, and 32 days of jet fuel, the highest levels in 15 years. These figures include fuel held domestically and on ships within Australia’s exclusive economic zone. Stockholding obligations introduced in late 2021, particularly for diesel, have been a key factor in building those reserves.
However, the situation is moving fast and there are reasons to be cautious. On 5 March, China’s National Development and Reform Commission directed the country’s major refiners, including Sinopec, PetroChina, and CNOOC, to immediately suspend all exports of diesel and gasoline. The order requires refiners to stop signing new export contracts and attempt to cancel shipments already arranged. China is Asia’s third largest exporter of refined fuel products behind South Korea and Singapore, and was expected to export roughly 490,000 metric tonnes of gasoline and 800,000 metric tonnes of diesel in March alone. That volume is now effectively off the regional market.
In a further sign of how disrupted trade flows have become, Exxon Mobil has scheduled its first ever gasoline shipment from the US Gulf Coast to Australia: two tankers carrying a combined 600,000 barrels of mostly gasoline, loading from Houston in mid March. The freight cost alone is estimated at US$20 per barrel, far more expensive than sourcing from Asia under normal conditions. Analysts have noted that this route is unlikely to be sustainable long term, but the fact that it is happening at all underlines the severity of the current disruption.
Australia is unlikely to completely run out of fuel as a result of this conflict. The supply chain has multiple levers. But the combination of Strait of Hormuz disruption, China locking down refined exports, Asian refiners cutting throughput due to crude supply constraints, and insurers withdrawing coverage means this is more serious than a typical Middle Eastern flare up. Supply is not guaranteed to flow as smoothly or as cheaply as it normally does, and the next few weeks will be telling.
Prices are moving. The question is how far and for how long.
Wholesale and terminal gate prices in Australia are set by global markets. When Brent crude jumps, those costs flow through to what independents pay for their next load. Analysts have warned pump prices could rise by as much as 40 cents per litre if the conflict is prolonged. The widely used rule of thumb is that every US$10 increase per barrel adds roughly 10 cents at the pump. With Brent already up more than US$12 from late February levels, some of that pressure is already building. Unleaded 91 was sitting between 211.9 and 213.9 cents per litre in Sydney, Melbourne, and Brisbane earlier this week.
Some perspective is warranted, though. Oil price volatility in response to geopolitical events is not what it used to be. The US is now a net exporter of crude oil, which fundamentally changes global supply dynamics. During the 12 day Iran conflict last year, Australian fuel prices rose 5 to 10% and returned to normal within days. Previous spikes during COVID, the Russia/Ukraine invasion, and the GFC all followed a similar pattern: sharp rises followed by corrections as markets found new equilibrium.
That said, there is a real possibility this situation plays out differently. The scale of disruption across multiple chokepoints, the Chinese export ban, and the insurance market pulling coverage from Gulf shipping are all factors that could sustain elevated prices for longer than a typical spike. Markets could overcorrect in either direction, and it is genuinely difficult to predict which way this goes from here.
What should independent operators be doing?
The consistent message from across the supply chain is: don’t panic, but don’t be complacent either.
For most independents, whether buying under a supply and branding agreement with a major or purchasing spot loads from distributors, the pricing mechanism is essentially the same. Terminal gate prices rise and fall with the global market, which means the cost of your next delivery reflects whatever the market is doing at that point, and the one after that adjusts again. The risk sits in managing the volatility in between. Stockpiling fuel expecting prices to keep rising can leave you exposed if the market corrects. Running too lean and having to buy at the peak is equally painful. The sensible approach is to understand your capacity for things to go wrong, know what your exposure looks like at different price points, and avoid overcommitting in either direction.
Watch your cash flow. A sharp price increase means you are paying more upfront for each load while revenue catches up as you adjust your board price and work through existing stock. Get ahead of that conversation with your bank or financier now, rather than waiting until you are under pressure. RBA Governor Michele Bullock signalled on 3 March that another rate hike is possible at the 17 March board meeting, with the cash rate already at 3.85% following February’s increase. For operators carrying debt on their site, equipment, or vehicle finance, higher interest rates arriving alongside increased wholesale costs creates a compounding pressure that needs to be planned for.
Understand allocation risk. If supply tightens further, major suppliers may cap forward orders at a percentage of usual volumes. Contracted customers are generally prioritised, with allocations applied as fairly as possible across the network. Spot purchasing tends to be more affected, with availability and pricing becoming less predictable. We are not at that point yet, but with Chinese refined exports suspended and key shipping routes compromised, it is not an unreasonable scenario to plan for. If you have a supply agreement, check your allocation terms and understand what happens if volumes are capped. If you are buying spot, have a backup plan.
Stay close to your supplier. Keep communication open. If your requirements change, let them know early. If ships are delayed or volumes are allocated, the operators who have been communicating regularly and providing clear updates on their needs will be better positioned than those who have not.
The demand side of the equation
It is also worth considering what happens on the demand side. If broader economic activity slows, if air travel is disrupted, if consumers start driving less in response to higher pump prices, that can moderate demand and ultimately help stabilise prices. During COVID, jet fuel demand dropped by 90%, and a similar dynamic could play out if the conflict leads to significant disruption of global air routes. Several major airlines have already suspended services through the region. Price itself is an allocator: at some point, higher prices naturally suppress demand, which in turn eases pressure on supply. That does not help your margin in the short term, but it is part of the mechanism that eventually brings markets back into balance.
The bottom line
Markets respond. Prices go up, and historically they come down again. That cycle has played out through every major disruption of the past two decades, and the global oil supply chain has proven itself to be resilient and adaptable. But this one has some features that set it apart: the Strait of Hormuz effectively closed, China locking down exports, Exxon shipping US gasoline to Australia for the first time, Asian refining margins at four year highs, and the RBA potentially hiking rates again within days. These are not normal market conditions.
Keep a close eye on your numbers, manage your stock sensibly, and be ready for a range of outcomes. This situation could resolve quickly, or it could get worse before it gets better. Either way, the operators who come through it best will be the ones who stayed calm, stayed informed, and stayed across their cash position.