Two weeks into the escalating conflict in the Middle East, Iran’s military command has warned that global oil prices could soar to $US200 ($286) a barrel. This alarming forecast raises pressing questions for Australians about the potential impact on everyday items and services.
The war has severely disrupted global economic activity, particularly affecting the flow of oil as Iran targets vessels in the Strait of Hormuz, a critical passage for about 20% of the world’s fuel. In response, the International Energy Agency has pledged to release 400 million barrels of emergency oil reserves, marking the largest such release in its history.
Despite these measures, Australians are likely to face higher petrol prices, a loss of natural gas, disrupted shipping routes, and rising agricultural costs. These factors are expected to drive up prices of everyday items as supply lines and markets face significant disruptions.
Bread, Beer, and Grocery Items
The agricultural sector is bracing for a potential fertiliser crisis due to the conflict’s impact on the supply of urea, a key nitrogen fertiliser. Urea is essential for high yields in crops such as wheat, barley, oats, and various vegetables, and its production is closely tied to natural gas, which has also been affected by the conflict.
Professor Tiho Ancev, an expert in Agricultural and Resource Economics, noted that the effects might not be immediate but warned consumers to remain vigilant. “The fertiliser will be used for crops that will be produced in five months, six months, maybe a year,” he explained, highlighting the potential for future price increases.
National Farmers’ Federation president Hamish McIntyre expressed concerns about urea shortages driving up food production costs and squeezing farmers’ margins. However, he assured that farmers would continue using fertiliser at similar levels despite the challenges.
“This is not the time to be playing on panic moods,” Dr. Ancev advised, urging supermarkets to avoid price gouging.
Electricity Costs
The rise in natural gas prices is also likely to affect electricity costs, potentially increasing household bills. Dr. Ancev explained that natural gas-powered generators often set the market price for electricity, meaning that high gas prices typically lead to higher electricity costs, as seen during the 2022 Russian invasion of Ukraine.
Fortunately, the timing of the potential spike coincides with a period of low electricity demand due to mild weather. However, if the conflict persists into the winter, energy prices could be further impacted.
Dr. Ancev noted, “The exact nature of the price hikes will depend on how long the war lasts.”
International Flights and Travel
Over 43,000 flights to and from the Middle East have been canceled since the conflict began, according to aviation analyst Cirium. As flights are canceled and fuel costs rise, airlines worldwide, including Qantas, are increasing airfares to cover costs.
Dean Long from the Australian Travel Industry Association indicated that Qantas would raise international airfares by about 5%. He added that the impact on flight prices might not be felt for another three to six months.
While domestic flight prices remain unaffected for now, other airlines have already passed on fuel increases to domestic routes.
Shipping Prices and Retail Goods
The immediate disruption in shipping has created shortages and increased prices, with ripple effects expected in other sectors. Dr. Ancev pointed out that while Australia is primarily an exporter, the cost of shipping agricultural products could rise, making them more expensive in destination markets.
One small business owner shared with ABC’s Hack that rising petrol costs have forced her to increase prices to sustain her business. Meanwhile, David Leaney, an international supply chain expert at the Australian National University, mentioned that Australia has about 36 days’ supply of fuel.
As the situation unfolds, the full extent of the conflict’s impact on Australian consumers remains uncertain. However, the potential for increased costs across various sectors highlights the interconnected nature of global markets and the far-reaching consequences of geopolitical conflicts.
