The Iran war has triggered a fuel price rise. What does this mean for Australian consumers?

As many Australians prepare for the Labour Day long weekend, you might be watching the price at the fuel bowser with more trepidation than usual.

The crisis in the Middle East has caused global disruptions to energy and liquid fuel markets. And we are feeling it in Australia.

Shipping in the crucial Strait of Hormuz, the only sea passage from the oil-rich Persian Gulf to the open ocean, has come to a virtual standstill, sparking a global oil price rise of about 10%. And the risk of Middle Eastern energy infrastructure becoming military targets has also raised the prospect of reduced production.

So, what does this mean for Australia?

Prices rising

Australia imports roughly 90% of its liquid fuel (refined petrol and diesel). This means world crude oil prices have a direct impact on our pump prices.

In Australia, analysts say petrol prices could jump by around 40c a litre, meaning the cost of filling the tank would be about $24 for a 60 litre tank.

Airfares are also affected, because jet fuel is directly linked to crude oil prices. Prices could rise by 10–20%, and even more for long-haul international flights, which use more fuel.

Is Australia buffered from oil price spikes?

The short answer is no. As an importer of liquid fuel, Australia is highly susceptible to oil prices spikes, meaning global shocks flow directly to the pump. There is no liquid fuel market to regulate, so the only protection we have as importers is the Australian Competition and Consumer Commission (ACCC), which monitors exploitative retail behaviour.

The ACCC can intervene to prevent price gouging and unconscionable practices, but it has no power over the market. Therefore, it cannot insulate consumers against normal market increases.

There is also the possibility that oil supplies will run low. The International Energy Agency (IEA) requires countries keep a stockpile of oil to be used where global shocks cause a shortage. However, Australia’s current emergency strategic fuel reserve is “non-compliant”, and has been since 2012. At the start of 2026, Australia has an estimated 36 days of petrol, 34 days of diesel and 32 days of jet fuel. This is the largest stockpile Australia has had in 15 years, but it still may not be enough.

If our fuel supply slows and the government declares an emergency, priority must be given to critical services such as essential works, the defence force and national security, over public distribution. Based on this, the prediction is that reserves could cover 26 days of usual petrol demand, 25 days of diesel consumption, and 20 days’ worth of jet fuel.

What about gas and electricity prices?

Australia produces a lot of gas (especially Liquid Natural Gas or LNG), and our domestic east coast gas prices are linked to global LNG export prices. This is because gas producers want to sell gas at the highest prices, and these are generally found on the export market. Because of this, a significant percentage of gas produced annually in Australia is sold internationally to countries like South Korea, Japan and China. In the first half of 2025, roughly 93% of LNG produced in Australia was shipped overseas.

Where global LNG prices rise, exporters can charge more overseas and this puts upward pressure on domestic gas prices, even when supply levels have not changed. If Australian gas generators increase the wholesale price of gas because of a global spike in prices, domestic gas and electricity prices also go up.

Disruption in the Strait of Hormuz has pushed up the international price of LNG because traders expect tighter supplies. Since the Middle East crisis began, LNG prices have soared by about 12%.

How can Australia respond?

Since 2023, Australia has a mandatory gas code in place to reasonable domestic gas prices and supply on the east coast. It imposes a price cap of $12 per gigajoule, good-faith negotiation rules, and transparency obligations on producers.

But this code is not a full shield – if LNG prices surge dramatically, domestic gas prices may still rise within the “reasonable price” threshold. Nonetheless, domestic consumers on the east coast are better protected than previously.

In addition, Australia still has the Domestic Gas Reservation Mechanism, which allows the government to trigger export controls in the event of a domestic shortfall. It has never been triggered and it has a lead-in time, but it is possible.

The government has also proposed a gas reservation policy, set to take effect in 2027. It will mean suppliers of gas in the east coast market must not enter into wholesale supply contracts where the gas price exceeds a reasonable price.

How will this gas reservation policy work?

Under the scheme, gas exporters will need to demonstrate they have met domestic supply obligations before LNG export approvals can be granted. They will also be required to set aside 15–25% of production for domestic supply.

The overall aim is to increase domestic gas availability and reduce reliance on volatile export pricing. Once implemented, the reservation policy combined with the mandatory gas code will help to insulate Australian consumers from price spikes like those currently triggered by the Iran conflict.

However, the reservation policy will only apply to a fraction of total supply and cannot fully insulate against a prolonged global increase in pricing. There’s no easy answer, and more fuel price hikes are likely.