Australia needs to reduce oil imports

[The war in the Middle East has] turbocharged fuel costs and Australians are paying a very hefty price – Treasurer Jim Chalmers

Australia is already spending $50–70bn a year buying imported fuel. We need to ask how much additional cost is economically rational to pay to reduce strategic risk attached to that dependence, and what benefits would accrue from building a more resilient liquid fuels sector.

Global supply chains make oil cheap by removing redundancy, but the price gap between ideal trading conditions, and disrupted conditions, is a delta we have to pay.

That delta can be quantified – and it is large. Instead of paying it to overseas suppliers, we should redirect it into technologies that reduce our dependence on liquid fuels where practical and, where they’re essential (eg Defence), produce them domestically, thus strengthening the economy while building resilience.

There are many causes of Australia’s OECD-leading inflation but RBA Governor Michele Bullock says the oil shock is making inflation “much worse”, and last week raised rates to their highest level since 2011.

What does imported oil actually cost Australia?

The economic case for importing fuel is straightforward. Enormous overseas refineries produce liquid fuels cheaper than smaller Australian plants, so it made sense to import the cheaper product.

But prices can rise sharply because of wars, blockades, production cuts (OPEC), tariffs, or shipping disruptions thousands of kilometres from Australia. When they do, the additional cost moves through the entire economy, causes inflation, and contributes to higher interest rates as we saw this week.

We can actually quantify the gap between business-as-usual cheap fuels, which is what the globalisation/free trade case rests on, vs what we pay in reality over time. This means we can assess the opportunity cost.

In 2023-2024 Australia imported $55bn worth of oil products, $65bn in 2025-26 and Q1 2026 running at $90bn annualised with projections of even higher prices.

Using the Reserve Bank’s pre-Iran-war oil-price of USD $63/bbl assumption as a baseline, higher crude prices alone imply roughly $18bn a year in additional crude-equivalent imports over baseline. That is a conservative measure of the shock. Australia imports large volumes of refined fuels as well as crude, and during the crisis the premiums on diesel, petrol and aviation fuel (and shipping costs) also rose sharply.

The true increase in Australia’s landed fuel bill was therefore higher.