Iran has vowed to choke global shipping. That could push petrol to $2.50 a litre
Australian petrol prices could hit $2.50 a litre while electricity and gas prices spike if Iran closes its shipping channels to the world, blocking the conduit for Middle Eastern energy exports representing about 20 per cent of globally traded oil and gas.
Iran's parliament is reported to have agreed to close the Strait of Hormuz, but it is unclear if the nation's military will implement a blockade, which could draw brutal retaliation from the US and its allies.
However, just the threat of global disruption can drive commodity prices higher. When Vladimir Putin invaded of Ukraine in 2022, fears over shortages due to widespread embargoes on Russia's oil and gas exports helped drive price spikes along with the physical shortage of fuel.
Any shift in global markets will affect local energy prices because Australia imports the vast majority of its petroleum. Despite Australia being a major gas exporter, local gas prices are set by the international market because buyers here compete with the rest of the world.
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Schneider Electric senior director Lisa Zembrodt, who advises some of Australia's biggest corporate energy users, said disruption to shipping through the Strait of Hormuz would affect 20 per cent of the world's petroleum liquids consumption and 20 per cent of liquified natural gas. She said more than 80 per cent of these exports go to Asian markets, which drives prices in Australia.
'When the price of oil rises, we see this at the pump. When the international price of gas rises, the price of gas as a fuel for heating may rise, despite that we produce twice as much as we consume domestically. The cost of gas-fired generation can also rise, causing electricity prices to rise at times when gas is setting the price in the market – for example recently during the cold snap in Victoria.'
And while only around 10 per cent of Australia's electricity is generated by gas, it is the most expensive compared to the dominant fuel sources of coal and renewable energy, which means it sets a benchmark price that drives all the others up if its price spikes.
The 2022 electricity crisis culminated in price spikes so high that the regulator imposed the first-ever suspension of the market, and bills have remained elevated ever since.
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