The Middle East war is a stress test Australia may not pass

The consequences of wars fought thousands of kilometres away rarely feel immediate to Australians. Yet the latest war in the Middle East has begun to seep into everyday life in tangible ways. 

Beyond dominating headlines and social media feeds, it has quietly exposed the structural weaknesses of a nation deeply embedded in global systems but not always insulated from their shocks.

Samantha Hepburn, a professor of law at Deakin University, specialising in energy regulation and policy, says the domestic ramifications of the current crisis are less about Australia’s role in geopolitics and more about the country’s reliance on fragile globalised systems — in particular, a fuel supply system built on long, vulnerable chains with limited disruption buffers.

“The Iran conflict has revealed multiple structural weaknesses in Australia’s energy security framework,” Hepburn tells SBS News.

“It highlights the fact that Australia’s supply chain is geographically concentrated and fragile, and we cannot simply assume that the boats will keep coming with supplies.”

History suggests this is not unusual. The 1973 oil crisis sent fuel prices soaring worldwide, while the COVID-19 pandemic exposed how quickly supply chains can unravel.

Similarly, the war in the Middle East has snowballed into a global stress test, with energy markets tightened, shipping routes disrupted and geopolitical alliances stretched. For Australia, the implications extend well beyond foreign policy — cutting to the core of how the country powers its economy, secures its reserves and borders, and prepares its institutions for crisis.

Experts say the question is no longer whether Australia is exposed, but how prepared it is to respond.

Energy security risks: A strategic blind spot

Australia is often described as an energy superpower. It is one of the world’s largest exporters of liquefied natural gas and coal. Yet beneath that outward strength lies a paradox: the country remains heavily dependent on imported refined fuel.

According to government data, Australia imports roughly 90 per cent of its refined petroleum, much of it travelling through contested maritime routes, including the Strait of Hormuz.

Limited reserves compound this vulnerability. Under current policy settings, Australia’s fuel coverage falls well short of the 90-day benchmark set by the International Energy Agency (IEA).

Hepburn argues the gap is both immediate and structural.

“The domestic minimum security obligation under the Fuel Security Act 2021 imposes about 30 days … upon importers for petrol, diesel and jet fuel. The IEA mandates three times this amount,” she says.

“The difficulty is that with other priorities — i.e. defence, logistics [and] agriculture — there is not much left for consumers, and reserves will run dry very quickly. So this is very much a short-term solution that provides little redress in the event of a lengthy disruption.”

Hepburn says that closing this gap requires more than incremental fixes; it demands a coordinated, long-term strategy.

Her proposed measures include establishing government-controlled strategic reserves, reinvesting in domestic refining capacity, developing a sovereign tanker fleet, and accelerating electrification to reduce dependence on imported fuels. Taken together, these steps aim to strengthen Australia’s resilience to external supply disruptions, rather than merely provide a short-term buffer.

Experts warn such measures are not just about economics or logistics — they are increasingly matters of national security.

Rory Medcalf, head of the National Security College at the Australian National University, says energy security can no longer be treated as a side issue; ensuring a reliable fuel supply is now central to Australia’s strategic resilience.

“Energy security should be a regular part of national security policy, because without a reliable energy supply, everything else falls apart,” he tells SBS News.

“The costs of national fuel stockpiling don’t make commercial sense, but that’s the point: this should be treated as a prudent insurance policy by the government, in the same vein as defence spending.”

Supply chains and trade exposure

If energy is the bloodstream of the economy, supply chains are its nervous system, and both are under strain.

Recent disruptions echo the early shocks of the pandemic but are now being compounded by ongoing geopolitical instability.

Economist Saul Eslake says Australia’s exposure is magnified by its economic structure, particularly its reliance on global trade.

“Australia is vulnerable to these external shocks partly because we are a ‘small open economy'”, he tells SBS News.

“That is, trade accounts for about one-quarter of our GDP … and partly because, although we are a net exporter of energy overall, we are highly dependent on imports of petroleum products, most of which comes from refineries in Asia, which in turn rely largely on imports of crude oil from Gulf states.”

Compared to earlier crises such as the global financial crisis or the pandemic, Eslake says Australia’s capacity to respond has weakened over the years.

“We aren’t in as strong a position to respond to the negative consequences of a shock like this by using fiscal policy — that is, running big budget deficits to support economic growth — as we were ahead of the GFC or COVID-19 because we now have much bigger levels of public debt,” he says.

“Albeit not as big as many other ‘advanced’ economies.”

Australia’s trade is heavily concentrated with China, which buys nearly a third of all Australian exports and remains the country’s largest two-way trading partner, underscoring the risks of overdependence.

Rather than retreating inward, Eslake argues the response should be more strategic.

“The solution to the risks now posed by the destruction of the ‘rules-based international order’, which Donald Trump has wreaked in company with Vladimir Putin, is not — in my view — to turn our back on the world, to retreat into the Australia which existed between Federation and the early 1990s … but rather to form and deepen relationships with countries with whom we continue to share common values,” he says.

“And perhaps to avoid getting into fights where our interests are not at stake.”

Policy limits in a global shock

The economic consequences of the war in the Middle East are already feeding through to inflation, currency volatility and business costs.

Eslake indicates the risks extend beyond immediate fuel price shocks, pointing to the likelihood of secondary effects via Asia, where many of Australia’s key trading partners are even more dependent on imported energy. A slowdown across these economies would, in turn, weigh on Australian exports and growth.

“These are, of course, worst-case scenarios, and things could turn out less worse than these if the conflict ends quickly,” he says.

At the same time, the policy response itself carries risk. Eslake warns that efforts to rebuild domestic industrial capacity rapidly may entail high economic costs if not carefully calibrated.

“I think we need to be careful about any rush to embrace sovereign capabilities in a whole raft of industries — steel-making, car-making, petrol-refining, et cetera — where we are never going to be competitive without tariffs or subsidies.”

Defence and national preparedness

Beyond economic pressures, the crisis is also raising fresh questions about Australia’s defence vulnerabilities and broader strategic posture.

Medcalf says reliance on traditional allies, particularly the United States, is coming under scrutiny.

“The more pressing question is whether we can do more to defend our interests without principally relying on the US, and on this, we have a long way to go,” he says.

At the same time, Australia is trying to navigate a changing strategic environment, with the US pushing its allies to increase defence spending and take on a greater share of the security burden in the Indo-Pacific region.

Medcalf says the challenge goes beyond military capability alone. He argues resilience should be seen as a whole-of-society effort, extending to public awareness, institutional coordination and economic stability.

“But there is a huge amount more Australia can do to be prepared for a crisis, not only in stockpiling [weapons and/or fuel] but in driving an honest conversation between government and the community about how to cope with shocks to our economy and our cohesion as a society.”

He says national resilience should be a standing agenda item for the National Cabinet, with regular coordination between federal and state governments.

Technology: a changing battlefield

In modern conflicts, the line between military and civilian systems is increasingly blurred, with technology reshaping not just the tools of war but also the strategies.

Toby Walsh, a professor of artificial intelligence at the University of New South Wales, suggests this moment may mark a turning point.

“Historians of war will look back at this being the first AI war, in which AI was used not just in weapon systems like drones but all the way up the decision chain to the target selection and even the war gaming,” he tells SBS News.

But Australia’s technological defence preparations may not be keeping pace.

The 2023 Defence Strategic Review warned of urgent gaps in air and missile defence, suggesting that off-the-shelf solutions be considered, highlighting that the current program was not given sufficient priority. Co-author Peter Dean said in a report published by the US Studies Centre that Australia’s ground-based air defences remain inadequate, leaving the country vulnerable both at home and on deployment.

Walsh points out that traditional defence programs, including high-cost platforms such as nuclear-powered submarines, continue to dominate Australia’s investment priorities, even as the future of warfare shifts towards low-cost, autonomous systems operating across land, sea, and air.

“The geopolitical stability of the world has never been more precarious. Military might is no longer just F-35 fighters and aircraft carriers. It’s thousands of low-cost drones that Iran, for example, still possesses,” he says.

That shift, he argues, is not theoretical. It is already reshaping battlefields and exposing gaps in countries that are slow to adapt.

Experts say Australia’s strengths — resources, institutions, alliances — remain significant, but so too are its vulnerabilities. The crossroads is no longer distant; it’s already here.

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