Most are focusing on the scary thought of running out entirely. This is a simplistic view. The real problems will be caused by long term elevated prices and the lack of lasting stockpile ability to provide meaningful dilution of the higher prices. High oil prices hit the Australian economy hard, even though we're a major energy exporter in gas and coal. Australia remains a net importer of crude oil and refined fuels like petrol and diesel, so spikes flow straight through to everyday costs.
Soaring petrol and diesel prices at the bowser squeeze household budgets, acting like a direct tax on consumers and reducing disposable income. Families will be forced to cut back on spending elsewhere.
Higher transport and freight costs ripple quickly through the supply chain. Australia has significant reliance on trucking, which runs on diesel. The flow-on effect is pushing up prices for groceries, goods, utilities, and pretty much everything that moves by truck, ship, or plane. Food prices can surge, especially if diesel spikes hit farming and logistics hard.
Inflation pressure climbs as energy feeds into the CPI. Estimates suggest sustained high oil can add meaningfully to headline inflation, depending on the shock's size and duration. This forces the Reserve Bank of Australia into a tough spot: higher interest rates to tame inflation, which then bites mortgage holders and slows the broader economy.
Weaker economic growth, or even a potential recession, follows. Goldman Sachs financial modelling shows every US$10 rise in oil can shave around 0.24% off Australia's annual GDP growth, roughly double the impact seen in places like the US. Consumer spending drops, businesses face higher input costs, and sharemarkets often tank.
While LNG export revenues might offer some partial offset for the nation overall, that benefit doesn't reach most households or small businesses. They just feel the higher costs without the upside. In short, prolonged high oil prices act as a broad economic drag, hitting living standards, inflating costs across the board, and risking slower growth or even stagflation-like pressures if combined with other global headwinds.
Last but not least, Morgan Stanley has identified Australia as one of the nations to suffer the most. Good times ahead.
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.