Since the United States and Israel launched an attack on Iran on 28 February, crude oil and liquefied natural gas (LNG) shipments through the narrow Strait of Hormuz has crawled to a standstill. The Strait of Hormuz, which is just 33 kilometres wide at its narrowest point between Iran and Oman, is a major chokepoint on global energy supplies. Around one-fifth of global crude oil supply passes through this narrow channel.
Key manufacturing hubs across Asia rely on energy shipments through the Strait of Hormuz, including China, India, Taiwan, and Japan. As these countries scramble to find new supply, prices have already increased by almost 30% since the beginning of the conflict, which is an even sharper increase than what global markets saw at the onset of the Russia-Ukraine conflict.
If energy infrastructure and production continue to be targeted throughout the US-Israel-Iran conflict, oil and LNG prices will remain elevated. Additionally, as Russian energy exports are still sanctioned, there is less capacity in the system to manage this new supply shock—put simply, it could get worse before it gets better. To help ease prices, the United States has already relaxed some sanctions on Russian oil exports.
Australia is one of the largest LNG exporters in the world. With Qatari and Russian LNG exports (the third and fourth largest producers) effectively off-limits, our major trading partners will be looking towards Australia as a source of secure, high-volume supply. However, this must also be balanced with mitigating the risks of higher energy prices in Australia, which has hurt domestic industries over the past few years and could drive up inflation.
