Implications of Iran's Threat to Block Strait of Hormuz on Australian Fuel Prices

The Strait of Hormuz, a strategically vital maritime corridor, plays a crucial role in global oil supply, with about 20% of the world’s oil trade flowing through it daily. Recent escalations in geopolitical tensions involving Iran have prompted concerns regarding potential disruptions to this critical shipping lane. In light of the Iranian parliament's reported vote to consider blocking the strait, analysts are evaluating the implications for Australian fuel prices and the broader global oil market.

On June 23, 2025, as tensions rose following U.S. military actions against Iranian nuclear facilities, Iran's parliament proposed measures that could lead to the blockage of the Strait of Hormuz. The final decision now rests with Iran's Supreme National Security Council, which has yet to announce a definitive course of action. While Iran borders the strait, it does not have unilateral control over it, as Oman and the United Arab Emirates also share the maritime boundary.

The Strait of Hormuz serves as the only marine entry to the Persian Gulf, making it an essential route for oil tankers transporting crude and liquefied natural gas from major producers such as Saudi Arabia, Iraq, and Qatar. According to Vortexa, an analytics firm, between January 2022 and May 2025, an estimated 17.8 to 20.8 million barrels of oil traversed the strait daily. Disruptions here could significantly affect the global oil supply chain, leading to increased costs for consumers worldwide.

Economist Saul Eslake, speaking to ABC NewsRadio, indicated that even the mere threat of a blockade could deter oil transport, exacerbating the already volatile market conditions. "If Iran were to block the Strait of Hormuz or indeed make credible threats to block it, it could act as a deterrent if not a formidable obstacle to getting a significant proportion of the world’s oil from where it’s produced to where it’s needed," said Eslake.

Conversely, U.S. Vice President JD Vance characterized closing the strait as economically detrimental for Iran, suggesting that such a move would be self-sabotaging given that the Iranian economy heavily relies on oil exports. Vance remarked, "Their entire economy runs through the Strait of Hormuz. If they want to destroy their own economy and cause disruptions in the world, I think that would be their decision."

Australia, which imports approximately 90% of its refined oil, primarily relies on countries like Korea, Singapore, and Malaysia for its fuel supply, much of which is sourced from the Middle East. The U.S. Energy Information Administration reported that in 2024, 84% of crude oil passing through the Strait of Hormuz was destined for Asian markets, including China and India, which are significant suppliers for Australia.

NRMA spokesperson Peter Khoury emphasized that disruptions in the strait will undoubtedly affect fuel prices in Australia. He stated, "Every time the Middle East sneezes, the rest of the world catches a cold, so we would expect to see significant increases in all oil prices." As geopolitical tensions continue to evolve, the terminal oil gate price in Australia has already seen an increase of approximately 8 cents per litre.

While experts are predicting that petrol prices could rise to as much as $2.30 to $2.50 per litre if Iran proceeds with its blockade threat, they caution that the situation may not mirror the price surges experienced during the early stages of the Russia-Ukraine conflict. Mark McKenzie, CEO of the Australasian Convenience and Petroleum Marketers Association, noted that current oil prices remain below the levels recorded during that period, suggesting that markets are adapting to geopolitical uncertainties.

The timeline for potential price increases is anticipated to be mid-August, contingent on oil prices and refining capacities. As the situation unfolds, Australia will remain vigilant regarding its fuel supply lines and the potential economic impact of decisions made in Tehran.

In conclusion, while the likelihood of a blockade remains uncertain, the ramifications for Australian fuel prices are considerable, underscoring the interconnectedness of global oil markets and the sensitivity of consumer costs to international maritime security issues.