If not now, when? Global energy shock must be Australia’s fossil fuel reform moment

The US/Israel war on Iran is the latest geopolitical disruption to trigger a domestic cost-of-living crisis. Petrol and diesel prices are soaring, and the pain is spreading through mortgage rates, grocery bills, and falling super balances as markets slumps.

This is no longer just a pump-price issue; it is a systemic shock to the Australian economy, repeating the fossil fuel hyperinflationary hit we all collectively suffered with Putin’s invasion of Ukraine in 2022. It is time for Australia to focus and value energy independence.

The volatility and inflation in global energy markets is staggering. Brent crude oil has experienced sharp surges following the near-total shutdown of the Strait of Hormuz – a chokepoint that handles roughly 20 per cent of global oil and LNG flows.

Goldman Sachs has warned that the current collapse in traffic could push Brent crude toward its 2008 all-time high of $147.50 per barrel, noting that a “risk premium” of up to $135 is possible. This war is unlikely to end quickly, or without massive medium term cost.

The surge in fuel costs – with city petrol prices around $2.50 –  acts as yet another de facto fossil fuel tax on every Australian. AMP says petrol prices of around even $2.38 a litre translate to a $103 a month rise in the petrol bill for an average household. If these prices are sustained, it represents a whopping 1.4% boost to inflation, likely pushing it well above 5 per cent.

This is impacting interest rates. On March 17, the Reserve Bank increased the cash rate to 4.10 per cent, noting “sharply higher fuel prices” resulting from the war are driving upside inflation risk. More hikes are likely. Mortgage holders are caught in a double bind: a global energy shock pushing up the cost of living, and a central bank responding by making borrowing more expensive.

When combined with higher mortgage interest payments from the two RBA rate hikes so far this year, the total hit to the spending power of households with a mortgage and a petrol car is now in excess of $300 a month.

This crisis is likely to persist long after the immediate conflict subsides. Beyond oil, the destruction of LNG infrastructure and crippling of transit through the Strait of Hormuz has disrupted supply chains for years to come. Missile attacks have sidelined export capacity from Qatar, which supplies roughly 20% of the world’s total LNG, with repairs expected to take three to five years.

Australia’s vulnerability to such gas shocks is largely self-inflicted by chronic policy failure. While we are a top 3 global fossil gas exporter, >80% of our gas production is exported, leaving domestic consumers exposed to hyperinflated global prices.

Higher gas prices feed directly into electricity costs, which then inflate the price of groceries and manufacturing. While ordinary households face surging energy bills, tax-dodging multinational gas exporters are pocketing windfall war superprofits – a bonanza now worth billions more than before the US/Israel attack. 

So far in this war, the multinational gas cartel has been very careful not to inflate domestic gas prices, knowing Federal Energy Minister Chris Bowen has a very large stick in his hand – a domestic gas reservation policy, a reminder to the rapacious cartel that they require a social licence to operate here.

The International Energy Agency (IEA) has characterised the current situation as the most severe global energy supply disruption in history, equivalent to the twin oil shocks of the 1970s and the impacts of Russia’s war on Ukraine combined.

Australia is among the most exposed nations on earth, importing over 90 per cent of its refined oil products. We began March 2026 with precarious fuel security levels – approximately 36 days of petrol and 34 of diesel. We are watching the global tap being turned off in real time. 

There could be no clearer indication that we need to accelerate our transition to low-cost clean domestic firmed renewables and electric vehicles to secure our energy independence.

This calls for national interest investment and supportive policy measures in EVs, and the enabling charging infrastructure, both for passenger vehicles and heavy duty freight and mining trucks. With the profound improvements in batteries, charging and EV technologies, the solutions are commercially viable today. But we need the right policy setting for the urgent modernisation of our energy and infrastructure that is required.

This crisis should also be a catalyst for long-overdue fossil fuel policy reform. The federal government is under increasing pressure, including from the ACTU, to consider a meaningful levy on gas multinationals’ profits and further reform the Petroleum Resource Rent Tax (PRRT), or to replace the failing PRRT entirely.

These measures would ensure a fair share of revenue is collected from the gas profiteers, particularly at times of obscene war-profits being derived by this industry. In just the first 4 weeks of the war on Iran, the Fair Share Levy proposed by The Superpower institute would have raised $1.6 billion in tax revenues that could fund critical cost-of-living relief.

Equally urgent is capping and transforming the $11 billion annual fossil fuel subsidy that keeps Australia’s mining sector addicted to imported diesel fuel. Currently, $4.5 billion per annum in diesel refunds flow from taxpayers to some of the world’s most profitable mining companies – by far the biggest importers of diesel.

In 2023-24, BHP and Rio Tinto alone were refunded $627 million and $416 million respectively. This scheme’s growing costs are expected to outstrip spending on disability assistance, child care and aged care.

Rio Tinto is cynically lobbying the government to leave the subsidy untouched, claiming the technology to transition from diesel equipment to electric heavy-haulage is immature and uneconomic, even as China has already commercialised the manufacture of electric heavy-duty trucks, and Rio Tinto’s Simandou iron ore mines in Guinea are deploying XCMG EV trucks today at scale.

BHP deployed a renewable energy powered grid in its Chile copper mine back in 2022, but won’t invest to replace diesel with domestic electricity here in Australia. 

Meanwhile, industry leader Fortescue is actively bringing EV trucks and locomotives, batteries, solar and wind to the Pilbara at speed and scale. It can be done in partnership with our key Chinese customers, leveraging low cost Chinese finance, secured against the rivers of gold China buys from our miners in the form of iron ore. This would be a prime example of green energy statecraft in action today.

Australia cannot continue to lurch from one energy shock to the next, handing out vast amounts of public money to underwrite the imported diesel habit of miners. The Albanese government needs to stand up and stare down the BHP/MCA scare campaign warning it off progressive diesel rebate reform, and work for all Australians. And it needs to rein in the LNG exporters again laughing all the way to their taxhaven-based banks as ordinary Australians are gutted at the checkout, the pump, and on their mortgages. 

With the Treasurer flagging an ambitious response to global uncertainty in the forthcoming budget, the government has a mandate and an obligation to show policy courage. Let’s hope it does better than last week’s capitulation to the fossil fuel lobby, when it joined the Coalition and One Nation to vote down a Greens amendment calling for a gas windfall profits levy.

We must decouple our economy from volatile, hyperinflationary fossil fuel imports and demand a fair return on our export resources, and pivot away from our over-reliance on fossil fuel exports to new energy industries of the future. The crisis is here, and reform is overdue. If not now, when?