Australia’s economy is edging closer to recession, with fresh warnings the fallout from the US and Israel’s war on Iran could tip the country over the line if fuel disruptions worsen.
Economist Shane Oliver warned the situation has been deteriorating since the Strait of Hormuz effectively shut down at the start of the conflict, cutting off a critical artery for global oil supply.
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“The longer this goes on, the longer the flow of oil out of the strait is delayed or stopped, then the risk of recession grows in Australia,” Oliver said.
“If we actually start to run low on fuel, and therefore we have to restrict our usage, that then has an economic impact and potentially knocks us into recession through the second half of this year,” he warned.
While motorists are already feeling the strain at the bowser, the most serious consequences may still lie ahead, particularly if supply shortages begin to bite.
The Strait of Hormuz carries a significant share of the world’s oil, with Asia relying on it for around 80 per cent of its crude supply.
Current disruptions are estimated to be cutting off between 10 and 15 per cent of global oil supply.
For now, there is a lag effect cushioning the immediate blow. Refineries across Asia are still processing oil from shipments that departed the region earlier in the year, but that buffer is expected to run out soon.
“You will start to see a cut in production in Asia. They won’t then have the fuel to put back onto ships to Australia as refined products. Then you see a flow onto Australia,” Oliver said.
That supply squeeze is expected to ripple quickly through the economy, pushing up the cost of goods well beyond petrol, as higher transport and fertiliser prices feed into everyday expenses.
Oliver predicts inflation could climb to between 5 per cent and 5.5 per cent by June, raising the prospect of further interest rate hikes as the Reserve Bank moves to contain rising prices.
There is a silver lining, however, if economic conditions weaken significantly, interest rate cuts could come back into play next year as policymakers shift their focus from curbing inflation to supporting the economy.
