This is our region

The closure of the Strait of Hormuz in March 2026 has exposed a structural vulnerability that goes far deeper than fuel prices. Australia, a prosperous but exposed middle power, can no longer afford to outsource its supply chain resilience to the assumptions of a stable, superpower-managed global order.

The wake-up call

If fuel imports to Australia stopped today, the country would run dry within five weeks.

That is not a projection; it is arithmetic. According to the Department of Industry's Australian Petroleum Statistics, Australia holds approximately 36 days of petrol, 29 days of jet fuel, and 32 days of diesel in onshore reserves. In normal times, tankers arrive regularly and service stations stay stocked. But these reserves are the buffer that exists if those tankers stop coming.

The escalating conflict between the United States, Israel, and Iran has choked the Strait of Hormuz, the narrow passage through which roughly 20 per cent of the world's oil transits every day. Since the strait's effective closure on 2 March, roughly 18 million barrels per day of oil flows have been disrupted. Brent crude surged from US$71 per barrel in February to a peak of US$126. As of late March, unleaded fuel in Sydney has exceeded $2.40 per litre, diesel sits above $3.00 in regional centres, and the NRMA has reported widespread shortages at service stations across regional New South Wales and Queensland.

Understanding Australia’s fuel reserves

Members of the International Energy Agency (IEA), a group of 31 advanced economies, are required to maintain at least 90 days' worth of fuel in strategic reserves: a buffer designed to prevent a sudden supply disruption from crippling an economy.

Australia is the only IEA member that has consistently failed to meet this benchmark since 2012. Where countries like Japan, South Korea, and the United States hold months of fuel in dedicated underground storage, Australia's "reserves" consist largely of commercial stock sitting in tanks and refinery pipelines, already earmarked for sale rather than set aside for emergencies.

The Government's Fuel Security Act 2021 provides production payments to the remaining two domestic refineries (Ampol Lytton in Brisbane and Viva Geelong) and created a minimum stockholding obligation. But the obligation falls well short of the IEA's 90-day target, and Australia still lacks a dedicated government-held strategic reserve comparable to those maintained by its peers.

In practice, the impact of a sustained disruption arrives well before stocks hit zero. Prices spike immediately. Regional communities that depend on road freight for food, medicine, and supplies are the first affected. Airlines reduce services. Construction slows as diesel dries up. The Hormuz crisis is already demonstrating this pattern across regional Australia.

Why can’t Australia just use its own resources?

Australia is a significant oil and gas producer, and one of the world's largest LNG exporters. But liquid fuel is a different problem. Crude oil must be refined into petrol, diesel, and jet fuel before it can be used, and Australia has closed six of its eight refineries over the past two decades. Over 80 per cent of refined fuel is now imported, primarily from Singapore and South Korea, through supply chains that themselves depend on Middle Eastern crude shipped through Hormuz.

The result is a paradox familiar to resource-rich nations: Australia exports vast quantities of energy while remaining acutely vulnerable to a disruption in the refined fuels it imports. It is as if a wheat-producing nation had dismantled its flour mills.

The old rules no longer apply

For eight decades, the post-war international order let nations like Australia trade and prosper under the protection of maritime freedom of navigation, multilateral agreements, and the assumption that economic interdependence would restrain great-power conflict. That bedrock is fracturing, and the fractures are coming from the superpowers themselves.

Washington's pivot to protectionism, tariff escalation, and "Buy American" provisions has made it clear that allies are expected to fend for themselves. The United States Studies Centre warns that Australia faces "a more transactional and unpredictable US" in 2026. Meanwhile, Beijing has perfected what the Asialink Institute calls the "dependency superpower" model: building global influence by making other countries reliant on Chinese exports and processing capacity. When China weaponises those dependencies, as it did with trade sanctions from 2020 to 2023 and rare earth export controls in October 2025, the consequences are swift.

Russia's war in Ukraine completed the picture, shattering the illusion that economic interdependence prevents conflict. Europe discovered overnight what dependence on a single energy supplier means. The lesson applies equally to shipping lanes in the South China Sea, refineries in Singapore, and semiconductor factories in Taiwan.

The superpowers are, increasingly, the ones breaking the system.

A lesson from Northern Europe

Across Northern Europe, a group of nations (many smaller than Australia) are responding to the erosion of American reliability with quiet, purposeful self-assurance. The Nordic and Baltic states have collectively adopted a posture best described as "this is our region." Rather than waiting for Washington to dictate terms, they are investing in their own defence industries, deepening regional cooperation, and building institutional architecture to act independently. The EU's March 2025 plan to borrow up to €150 billion for defence exemplifies this shift.

Australia’s supply chain exposure

Australia is an island continent with no land borders and no overland freight routes. According to a 2025 industry survey by Trace Consultants (covering 420 firms), 47 per cent of Australian industrials were experiencing supply chain disruptions, up from 35 per cent in late 2024.

The China dependency

China accounts for nearly 40 per cent of Australia's total exports and controls 85 to 95 per cent of global rare earth processing. In October 2025, Beijing escalated export controls, requiring licences for foreign purchases. This is not theoretical; it is a demonstrated capability.

The chokepoint problem

Every major Australian trade route passes through contested waters controlled by Southeast Asian neighbours. The Strait of Malacca (squeezed between Malaysia, Singapore, and Indonesia) carries roughly 80 per cent of China's oil imports and a large share of Australia's Northeast Asian trade. The Lombok Strait serves as the primary alternative. The South China Sea, where the Philippines faces ongoing territorial pressure from Beijing, carries an estimated one-third of all global shipping. If these sea lanes close, so does Australia's economy.

The middle-power imperative

A growing body of strategic thought argues that middle powers must now act collectively to preserve their autonomy. Individually, they lack the weight to resist superpower coercion. Together, they represent a formidable counterbalance.

Australia’s partnership architecture

As Foreign Minister Penny Wong articulated in November 2025: Australia seeks "a region in which no country dominates, and no country is dominated."

Australia’s neighbourhood: the ASEAN opportunity

If the Nordic-Baltic experience shows that middle powers thrive by investing in their immediate region, then Australia's most underutilised strategic asset is its proximity to Southeast Asia. The four ASEAN nations closest to Australia (Indonesia, Singapore, Malaysia, and the Philippines) are not just neighbours; they are, in practical terms, the countries on which Australia's economic continuity depends.

Yet the Lowy Institute's Asia Power Index consistently ranks Australia's diplomatic influence in the region below its economic capacity. The 2024 Southeast Asia Economic Strategy to 2040, led by Nicholas Moore, set an explicit target to make Southeast Asia Australia's fastest-growing trade and investment region. That ambition must now be treated as a supply chain security imperative, not merely a trade aspiration.

Indonesia: the strategic anchor

With 285 million people, sovereignty over the Lombok and Sunda Straits, and the world's largest nickel reserves, Indonesia's cooperation is non-negotiable for Australian supply chain security. The 2024 Jakarta Treaty elevated the bilateral relationship to a new tier of defence and maritime consultation.

Singapore: the refining and logistics hub

Singapore refines a significant share of the fuel Australia consumes and serves as one of the world's largest transhipment ports. The Australia-Singapore Comprehensive Strategic Partnership, deepened in 2025, now includes supply chain resilience protocols alongside defence cooperation.

Malaysia: the Malacca gatekeeper

Malaysia straddles the Strait of Malacca on both shores and is a major semiconductor packaging hub, with Penang producing an estimated 13 per cent of global test and packaging output. Deepening trade with Malaysia offers both supply chain diversification and a strategic relationship with the nation that controls one of the world's most important shipping lanes.

The Philippines: the South China Sea frontline

The Philippines sits at the edge of the South China Sea, where it faces ongoing territorial pressure from Beijing. Manila's willingness to assert its sovereignty, backed by the 2016 Permanent Court of Arbitration ruling, makes it a natural partner for any freedom-of-navigation coalition. The Australia-Philippines Enhanced Strategic Partnership (September 2025) includes maritime domain awareness and defence industry cooperation.

How Australia should engage

The neighbourhood principle

The Nordic-Baltic nations built resilience not by looking to distant allies but by investing next door: deepening cooperation with neighbours, aligning defence capabilities, and creating economic interdependencies that serve mutual interests.

Australia must apply the same logic. Indonesia, Singapore, Malaysia, and the Philippines are not peripheral to our strategy. They are the strategy. Every shipping lane, every refinery, every alternative supply route that Australia depends on runs through their waters or their territory.

Charting our own course

The days of outsourcing our resilience to a benign international order are over. What follows is not a retreat from the world, but a more deliberate engagement with it. Therefore, we should:

Build a genuine strategic fuel reserve

The Fuel Security Act 2021 was a necessary first step, but its minimum stockholding obligations fall well short of the IEA's 90-day target. Australia needs a dedicated, government-held reserve, not a reliance on commercial stocks already committed to daily use. The current arrangement of leasing storage in the United States places emergency fuel on the wrong side of the Pacific.

Invest in the ASEAN corridor

The Southeast Asia Economic Strategy to 2040 must be treated as a supply chain security document. That means accelerating fuel reserve agreements with Singapore, co-investing in Indonesian mineral processing, building semiconductor supply partnerships with Malaysia, and embedding Australian procurement teams in ASEAN manufacturing ecosystems.

Diversify trade and procurement

The "China-plus-one" strategy is gaining traction for good reason. The ASEAN-4 (Indonesia, Singapore, Malaysia, the Philippines) should be the default alternative for Australian organisations, given geographic proximity, timezone alignment, and growing bilateral frameworks. The organisations that started this work two years ago are now navigating the Hormuz crisis with significantly less disruption than those that did not.

Close the processing gap

The A$1.2 billion Critical Minerals Strategic Reserve (announced April 2025) is not yet operational, and most government funding has gone to upstream mining rather than processing. A rare earth separation facility requires $500 million to $1 billion in capital and three to five years. The US$8.5B US-Australia framework is welcome, but Australia should also be exploring processing partnerships with Indonesia and Malaysia, where labour costs are lower and industrial infrastructure is expanding.

Treat resilience as a board-level priority

Supply chain resilience belongs on the risk register alongside cybersecurity and financial risk. A disruption 12,000 kilometres away can empty service stations and halt construction within weeks. Procurement teams must assess geopolitical risk, chokepoint exposure, and supplier-country concentration, not just price and delivery.

The road ahead

We are not a superpower. We never will be. But we are a capable, well-resourced, and strategically positioned middle power, and history shows that middle powers with considered strategies and genuine regional partnerships are the ones that shape the order rather than merely endure it.

Australia's table is in Southeast Asia. Indonesia, Singapore, Malaysia, and the Philippines are the countries whose waters carry our fuel, whose factories package our semiconductors, whose ports tranship our goods, and whose stability underpins our prosperity. Investing in these relationships is not generosity. It is self-interest.

This is our region. These are our supply chains to secure, our partnerships to deepen, our industries to build. The question is whether we will take responsibility for our own future.

The answer should not require deliberation.

This document has been prepared by Nuvanta Solutions Pty Ltd for general informational purposes. It does not constitute legal, financial, or regulatory advice. The views expressed are those of the author and do not necessarily reflect the position of any government agency, industry body, or official source. Data and analysis are current as of 29 March 2026. Readers should consult qualified professionals before making commercial decisions based on this material.