Iran's closure of Strait of Hormuz could drive up petrol prices by 70 cents per litre

News.com.au

4 hours ago

You may want to fill up your tank today.
Iran's threatened closure of the Strait of Hormuz could send petrol prices soaring by up to 70 cents per litre, putting pressure on the RBA to delay further interest rate cuts and driving a sharp fall in global share markets.
However, any prolonged disruption would also drag down economic growth and consumer spending, trimming underlying inflation and potentially putting the Reserve Bank in wait-and-see mode, according to AMP chief economist Shane Oliver, who is still leaning towards three more rate cuts this year in July, August and November.
'It's increasingly looking likely we might go into that worst-case scenario and the debate then goes into how long it lasts,' said Dr Oliver, who previously put a closure of the Strait of Hormuz as his 35 per cent 'risk case'.
The narrow stretch of water in the Middle East, which connects the Persian Gulf to the Gulf of Oman, is one of the world's most vital shipping channels where 20 per cent of the world's oil and 25 per cent of liquefied natural gas (LNG) flows through daily.
The waters are divided between Oman and Iran. At its narrowest, the strait is just 34 kilometres wide.
Following US President Donald Trump's strikes on Iran's nuclear facilities on Saturday, Iran's parliament voted on Sunday to close the Strait, as the country's President said the US 'must receive response to their aggression'.
While Iranian state media reported that the parliament had agreed to endorse blocking the Strait, the decision ultimately belongs to Iran's Supreme National Security Council — which is expected to make a final decision overnight on Sunday local time, according to Iran's state-run Press TV.
'Suicidal move'
The move could block more than $US1 billion in oil shipments per day.
Iran's major escalation in response to the US strikes 'will be done whenever necessary', Email Kosari, Commander in the Revolutionary Guards, said on Sunday.
US Secretary of State Marco Rubio warned against closing the strait, calling such a decision an escalation of conflict.
'That would be a suicidal move on their part, because I think the whole world would come against them if they did that,' Mr Rubio told CBS.
He earlier called on China to encourage Iran to not shut down the strategic channel after Washington carried out strikes on three nuclear sites in Iran.
Chairman of the Joint Chiefs of Staff General Dan Caine said in a press conference the US was now on 'high alert' for retaliation from Tehran.
'You could face a situation where the US could quickly disable Iran's ability to block the Strait of Hormuz [but] that could still be weeks,' said Dr Oliver.
'It's not actually putting a rope across — they could put mines in it, use missiles and drones to attack shipping, use small speedboats to attack bigger boats, that sort of stuff. They've only got to do it once, just like the Houthis [attacking shipping in the Gulf of Aden]. All you've got to do is do it once, you threaten to do it and ships stay away.'
As of Monday morning the Strait remains open and in commercial use, public vessel tracking data show, but shipping organisations and government organisations have urged caution.
At least one Chinese oil tanker was observed making a U-turn at the Strait.
Chinese are turning around as well.... this is something pic.twitter.com/Cab1ABZgGv
— Oil Bandit 🛢ï¸� (@OilCfd) June 22, 2025
The Baltic and International Maritime Council (BIMCO), one of the largest international shipping associations, has urged caution in the Middle East including the Strait of Hormuz and the Red Sea, after the Houthis announced renewed targeting of American vessels.
'The Houthi threat against shipping in the Red Sea and Gulf of Aden has also gone up,' BIMCO security chief Jakob Larsen told Bloomberg. 'The Houthis now threaten merchant ships with affiliation to Israel or the US, but attacks against merchant ships with other affiliations cannot be ruled out.'
Greece's Shipping Ministry has also advised shipowners to 'reassess their transit through the Strait of Hormuz', the outlet reports.
'70 cents per litre'
Sustained disruption in the Strait of Hormuz could send the global oil price soaring to $US150 a barrel from around $US70 on Friday, according to Dr Oliver.
'Roughly speaking each $US1 a barrel equals one cent a litre,' he said. 'If you go to $US150 you're potentially adding another 60-70 cents a litre.'
That would significantly increase headline inflation.
Petrol accounts for about 3.5 per cent of the consumer price index (CPI), which rose 2.4 per cent in the 12 months to the March quarter.
'If you push up towards $US100 a barrel and beyond, it will easily add 1 per cent to headline inflation,' Dr Oliver said.
'But it then becomes a question of what the RBA does.'
The current cash rate is 3.85 per cent, after a 25 basis point cut by the RBA in May.
Three more cuts had been tipped this year to bring the cash rate down to 3.1 per cent.
As of Friday, petrol prices had already risen by 10-12 cents per litre amid the Israel-Iran conflict.
Dr Oliver said if the impact remained at that level, 'you could get a bit of a boost' to headline inflation but the RBA 'would probably look through that' and likely cut again in July.
'If alternatively we see a clear disruption to trade which goes on for more than few days, then oil prices spike and the RBA could conceivably wait a bit longer,' he said.
'The RBA would also be looking at underlying inflation and may want to wait through. It would be keeping an eye on the impact on the economy. Higher oil prices are effectively a tax on consumer spending and economic growth. Ultimately that could outweigh the impact of higher petrol prices alone and drag down underlying inflation.'
Dr Oliver pointed out that while higher oil prices flowing from the war could drag on Australian economic growth via weaker global growth, Australia was relatively well placed as a net energy exporter and so may benefit from higher prices for gas exports.
There are also 'lots of issues around that what the Australian dollar does'.
'China, being the largest customer for this oil stands to be the most affected,' Alex Moffatt, director of Melbourne investment firm Joseph Palmer & Sons, said in a note on Monday. 'We can expect our energy stocks to enjoy a hearty rally today and the Aussie dollar to rally on 'safe-haven' buying.'
As of Monday morning oil futures were trading at around $US77 a barrel, up around 4 per cent from Friday.
'The risks are obviously increasing, but it's just a lot of noise at the moment,' Dr Oliver said.