Retail petrol and diesel prices have jumped up to 25 cents per litre in major cities, regional areas even higher, since the Iran conflict began, pushing average household weekly fuel bills toward record highs near $75.
Australia's strategic fuel reserves currently stand at 36 days of petrol, 34 days of diesel, and 32 days of jet fuel, keeping in mind that the war began on February 28 and we are now at 12 March. Even though Australia is at the highest level in over a decade, we are still far below the International Energy Agency's 90-day minimum, non-compliant since 2012. I have been quite critical about this over the years, and the head in the sand approach seems to have come back to haunt us. If this conflict drags on any longer, with disruption like what we're seeing right now, this can have serious implications for the Australian economy.
Successive governments, both sides of politics, have been criticised for decades of under investment: offshoring reserves, closing domestic refineries, and failing to build onshore stockpiles, leaving the country exposed to global shocks like the current Iran-related price spike.
According to reports, current regional shortages and station rationing are driven mainly by panic buying rather than outright supply failure, but experts warn the thin buffer risks food security knock ons, for example farmers struggling with diesel, and prices potentially exceeding $2 per litre if the conflict drags on.
I'm closely monitoring the effects of maintained higher fuel costs, because of the effect this could potentially have on the greater Australian economy. Inflation is well outside of what the RBA wants it to be, combined with greater international unrest, there's potential for catastrophic effects on Australians over a 6 to 12 month period. Combine this with the Australian housing bubble, likely rate increases in the near future, paired with historically high household debt, and we are staring down the barrel of a nightmare.
The 5% First Home Buyer scheme has driven a rabid increase in risky lending that is not privately backed, but government backed. Cotality has already reported a contraction in the housing market due to rates and inflation.
The doomsday scenario? Highly leveraged first home buyers begin to default due to an exponential increase in household costs, amidst a potential contraction of house values that were purchased at 95% loan to value ratio.
Financial Disclaimer. This content is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. It does not constitute financial product advice under the Corporations Act 2001 (Cth). Before acting on any information contained in this post, you should consider whether it is appropriate for your circumstances and, if necessary, seek independent financial advice. References to specific companies, markets, prediction tools, or investment strategies are for informational and educational purposes only and do not constitute a recommendation to buy, hold, or sell any financial product. Past events and probabilistic frameworks discussed are not reliable indicators of future performance.