The Middle East conflict is causing huge disruptions to energy supplies, with knock-on effects reaching far beyond petrol prices. While the initial US-Israeli strikes on Iran drew a muted response from global markets due to expectations it would be a short conflict, there are now questions over whether the US has a clean exit strategy that would guarantee a stable resumption of trade through the crucial Strait of Hormuz. This is the largest supply disruption in history, and it's affecting Australia in several ways, from the cost of crucial imported goods to the purchasing decisions made by consumers.
Electrified Sales
The shift to electrified vehicles was already strong before the war on Iran disrupted energy markets. However, the recent rise in petrol prices has convinced some fence-sitters to make a purchase decision. The Tesla Model Y and BYD Sealion 7 are the two strongest-selling EVs in Australia, and about one-third of new cars sold in Australia are now hybrids or EVs. This trend is likely to continue as consumers seek more sustainable alternatives.
Mortgage Pain
Oil prices are the single biggest contributor to global inflation, and the recent rise in oil prices is expected to lead to faster interest rate hikes than previously forecast. Australia's big four banks predict a rate rise on Tuesday, followed by another one in May. If the bank forecasts prove correct, mortgage holders with an $800,000 debt will be paying $363 more in monthly repayments by May than they were at the start of the year. This could have a significant impact on the Australian economy and jobs market.
Deliveries, Flights, and Dining
Almost all forms of travel and freight are becoming more expensive, with costs ultimately passed on to consumers. Australian businesses need to prepare for a new wave of freight cost increases, as road transport operators have confirmed fuel levy increases, and more carriers across ocean and air freight are expected to follow. Jet fuel prices have increased to levels not seen since early 2022, and if the war is protracted, rising fuel and fertiliser costs will be passed on to consumers through higher food prices. Australian farmers are facing soaring prices for the essential fertiliser ingredient urea, which has increased in price by more than 30% in the past month.
Plastic Recycling
The cost of plastic is intrinsically linked to rising global crude prices, and a persistent disruption in the oil market will inevitably lead to manufacturers passing these higher input costs on to food producers and retailers. This market disruption could make recycled plastic a more appealing alternative for Australian businesses, as the industry currently considers it to be prohibitively expensive. However, if the price of oil does not come down for a sustained period, the cost difference between recycled and imported virgin plastic may no longer be 50%.
MRIs and Helium Balloons
Australia imports its helium, an industrial gas used to power MRI machines and other critical medical, research, and manufacturing technology. Qatar, a major helium producer, has halted production after an Iranian strike on the Ras Laffan Industrial City. While the government says it is not aware of any immediate risk to helium supply or availability in Australia, the country's only helium plant closed in 2023, and a new company, Natural Helium Tasmania, is expected to be operating in 18 months' time. This shortage of helium could have significant implications for hospitals and research facilities across the nation.
In conclusion, the Middle East conflict is causing widespread disruption to energy supplies and global markets, with significant knock-on effects for Australia. From the cost of imported goods to the purchasing decisions of consumers, the impact is far-reaching. As the conflict continues, it will be crucial to monitor the situation and its implications for the Australian economy and beyond.
