Albanese government struggles under the ‘stress test’ posed by Middle East war

Crises “stress test” governments and countries. Memories remain vivid of COVID, which put immense pressures on the Australian economy, the federation and Commonwealth and state budgets.

The domestic crisis triggered by the Middle East war is well short of – and certainly less frightening than – the COVID emergency. But it is imposing major strains on supply chains, businesses, federal and state governments and the public.

The immediate “stress test” for the Albanese government comes from the hit to fuel. But the test is also wider, extending, for example, to how it handles its relationship with the United States and its volatile president.

The executive director of the International Energy Agency, Fatih Birol, visiting Australia this week, warned, “the world is facing the greatest global energy security threat in history”.

The fuel crisis has raised issues for the government on multiple fronts, including over the level of Australia fuel reserves, how effectively ministers can negotiate to secure more supplies, and what plans to put in place to deal with the increasingly difficult days ahead.

The government has insisted Australia has enough supply – declaring the problems are soaring demand and distribution faults. Its messaging has been less than optimal, with Energy Minister Chris Bowen initially downplaying the crisis too much and on occasion sounding tetchy.

Australia has about a month’s worth of petrol, diesel and jet fuel. Over the years both sides of politics have been willing to run this stock at limited levels, although some experts say much larger reserves should have been in place.

At present, most of the scheduled ships bringing fuel supplies are arriving; the several that have been cancelled have been replaced and some extra deliveries added. The government has been in contact with other countries to try to ensure the supply chain holds.

In its initiatives, the government has appointed a national fuel coordinator, released fuel stock and changed fuel standards. The Australian Competition and Consumer Commission is investigating suggestions of anti-competitive behaviour and price gouging.

NRMA spokesman Peter Khoury says while the government was a bit slow to act in response to early price spikes in Sydney, Melbourne and Brisbane, it has now done all it can.

Motorists, farmers, and transport and other businesses finding it hard to access fuel (especially diesel) are not comforted by reassurances that overall supplies are fine. They’re also impatient with exhortations to buy “only what you need”.

Across the country, hundreds of petrol stations are out of fuel, totally or partially (a complicated picture affected by regional and distributional factors).

So far, state and federal governments are holding off on drastic measures such as rationing.

Although Anthony Albanese has had one national cabinet meeting, there are loud calls for a “national” approach and for the federal government to be seen to be more in charge. Albanese has scheduled another national cabinet for Monday.

Whether and when the fuel crisis deepens or eases depends on factors out of Australia’s control – especially on what Donald Trump and Iran do from here on.

The crisis has impacts on the May 12 budget, both negative (pushing growth and job gains down) and positive (more revenue from war-driven profit windfalls in LNG and coal exports). Given the cost-of-living crisis, it is also bringing pressure on the government to take big policy decisions on fuel – notably, to lower fuel excise and impose a super profits tax to take advantage of increased gas exports.

At first blush, both proposals appear attractive. A closer look makes them less so, or at least more complex.

It might look fair to reduce excise, but it would complicate the inflation-fighting task of the Reserve Bank, and taking excise rates back up later would be unpopular.

The NRMA’s Khoury opposes cutting the excise on two grounds: that it would potentially reduce funds spent on roads, and that any reduction could be quickly swallowed by further changes in oil prices.

Anyway, the government is making it clear it is not intending to cut the excise.

Boosting the Petroleum Resource Rent Tax to capture super profits from gas exports would be a popular move supported by many on the left (the Greens) and the right (One Nation). And the tax does need changing. But there is a counterargument. Birol captured the dilemma.

“The real owners of these resources are the citizens of this very country. And I very much hope and expect that the citizens get the fair share for the richness of this country in terms of their resource endowments and their exports and the resulting revenues,” he told the ABC.

On the other hand, “one of the major assets of Australia is being a reliable and predictable country in terms of having the investors here investing in gas, minerals and others. I would be very careful not to take steps in order to cast a shadow on this predictability and reliability.”

Japan’s ambassador to Australia, Kazuhiro Suzuki, warned this week, “Japanese investors are saying, so if there’s a surprise, they just go to other countries”.

The US–Israeli attack on Iran drew immediate support from the Australian government. Now Albanese is making it clear he wants to see the war end quickly. Last week he said, albeit prematurely, “I’m hopeful that you can see an end point. The objectives of denying Iran the opportunity to have a development of a nuclear weapon have been secured.”

The government has dispatched an aircraft and accompanying personnel to the Middle East in response to a request that came formally from the United Arab Emirates. The government insists it is only participating in a defensive, not an offensive, way. It is a distinction many observers reject (and Iran has certainly done so).

Australia belatedly signed a statement from more than 20 countries, including the United Kingdom, France, Germany, Italy, the Netherlands, Japan and Canada, flagging they would be willing to contribute to action to keep the Strait of Hormuz open (although this would be only after bombing ceased).

As the war has dragged on, the Albanese government has watched developments, and Trump’s capricious conduct, with growing alarm. The war has seen the Australian government walking a delicate path in alliance relations.