The tyranny of distance and the Australian oil crisis

Distance is the primary factor affecting Australia in the current oil crisis, writes Dr Norm Sanders.

THE TYRANNY OF DISTANCE: How Distance Shaped Australia’s History is the title of historian Geoffrey Blainey’s groundbreaking 1966 book. He argued that distance was the primary factor in Australia’s development.

Today, distance is the primary factor in Australia’s impending oil crisis. With the Straits of Hormuz closed by Donald Trump’s war, the Middle Eastern oil, which Australia once obtained after being refined in Asia, is no longer available. All other sources are a very great distance away.

Best possibilities are the U.S. and, surprisingly, Africa. Australia historically sources approximately 18% to 21% of its crude oil and refinery feedstock from Africa.

Key African suppliers that can provide immediate, established supply links include Nigeria, Algeria, Angola and Gabon, which are major exporters with existing trade relationships in the Asia-Pacific region. Directly sourcing crude oil from African suppliers offers a way to bypass disruptions in the Strait of Hormuz. Australia has allowed its refining capacity to shrink to only two facilities, so the crude has to be refined in Asia.

The United States is a potential immediate source. Australia maintains a strategic fuel reserve in the U.S. Strategic Petroleum Reserve (SPR) under a 2020 bilateral agreement, allowing Australia to store 1.7 billion barrels of Australian Government-owned oil in U.S. underground caverns. This arrangement counts toward Australia's International Energy Agency (IEA) 90-day compliance obligations, focusing on storage over immediate domestic transport.

Unfortunately, there is a catch, and it is a big one. Australia can’t get direct access to this oil. Instead, during emergencies, Australia can coordinate with the International Energy Agency to release these stocks to the global market. The arrangement was viewed as an alternative to building immediate domestic capacity. In reality, it is a classic smoke-and-mirrors exercise to juggle numbers on paper.

This leaves direct purchasing of oil from the United States.

Australian importers and the Government have already been actively sourcing oil and fuel from America. These efforts have paid off. Recent data shows that the highest volume of fuel shipped from the U.S. to Australia in a single month in over three decades has just taken place. Impressive, but not nearly enough to make up for the pre-Trump war oil deliveries from the Asian refineries.

Sourcing fuel is the first step – and a big one – but there is another hurdle: obtaining tankers. There are approximately 3,500 large oil tankers presently operating worldwide. Four hundred and eighty of them are stranded in the Persian Gulf on the wrong side of the Strait of Hormuz. Three hundred additional tankers are idling in the Gulf of Oman to stay out of harm's way. That leaves an 800-tanker hole in the world fleet numbers at the moment. Scheduling tankers is a complex task at the best of times. Now it is far more difficult.

Once a tanker is obtained, it has to travel to a port for loading, which could take weeks depending on where it is located. It can then be in port for an average of five to seven days. Actual pumping only takes between 24 and 48 hours, but factors like terminal capacity, pumping speeds, number of hoses and cargo type determine the exact time. Total time between placing an order for a load of oil and the loaded tanker sailing could be up to a month or more.

Finally, the tanker can begin its voyage to Australia. Oceans are BIG. Before jet travel, migrants to Australia spent some 60 days travelling from England (the “Ten Pound Poms”). They knew how far away Australia was. Direct flights now take 17 hours from Perth to London. Flights to Los Angeles from Sydney are typically 14 or 15 hours. No big deal. Movies and booze.

I know about how big oceans are. In 1974, I migrated to Australia with my wife and daughter on a nine-metre sloop. I had been fired from my position as an Assistant Professor at the University of California, Santa Barbara. Not only was I an anti-Vietnam War protestor, but my class and I stopped the Chancellor’s pet freeway project across a local wildlife refuge. The voyage took months, as we only averaged 160 kilometres per day. Tankers are much faster, but it would still take them from 28 to 36 days for the trip.

Up until the "Trump war", 50 or so tankers per month reached Australia. Some are still arriving, but they will unload soon. Then, who knows?

The only certainty is that our lives are in for a radical change. All of them are easy to envision but hard to live with. Panic buying is already taking place and major chains are trying to calm things down. Woolworths CEO Amanda Bardwell said, “Woolworths is not facing any immediate fuel shortages or issues”.

Unfortunately, things aren’t that rosy. Because modern supply chains depend on diesel for shipping, freight and agriculture, a shortage will likely lead to bare supermarket shelves and restricted movement of goods.

All this will result in mass layoffs. Reduced economic activity would lead to significant job losses, particularly in transportation (including deliveries), manufacturing and tourism. Modern agriculture relies heavily on oil for machinery, irrigation, and the production of fertilisers and pesticides. Beyond fuel, oil is the feedstock for plastics, pharmaceuticals, rubber and synthetic fabrics. Medical supplies, from syringes to essential medicines, could become scarce and prohibitively expensive, degrading health services.

Australia and much of the world are in for a rough time. The only consolation is that the high cost of oil will make renewable energy sources more attractive. Long supply chains will likely be replaced by local production to reduce the high cost of transportation. But we have to make it through the coming months first.

The vast distances which have made Australia a safe haven in a war-torn world are about to cause unimaginable hardship due to Donald Trump.

Dr Norm Sanders is a former commercial pilot, flight instructor, university professor, Tasmanian State MP and Federal Senator.