Energy crisis will have long‍-‍term effects: Australian Industry Group

Research from Australian Industry Group has identified the lasting impacts on inflation, investment and more in Australia, even if the Gulf conflict is imminently resolved.

“The Iran energy crisis will have a long tail of impact on the Australian economy, with impacts for industries and households likely to persist for months yet,” said Innes Willox, Chief Executive. “Businesses and households alike have been hit through the fuel price shock, with a fifth of the world’s oil and gas supplies trapped in the Straits of Hormuz.

“Australia, which imports 90% of our liquid fuels, has suffered from an inflationary spike driven by surging fuel prices. We are also exposed on industrial commodities, relying on imports for urea, plastics and other industrial chemicals which have seen similar price rises.

“While it was positive to see fuel prices and inflation moderate in May, this was partially the result of government responses: fuel stockpile releases internationally, and the fuel excise cut in Australia. These policy supports cannot and will not last indefinitely.”

Willox says that the uncertainty around recent attempts to resolve the conflict, and damage to energy infrastructure in the Middle East, suggests it will be many months at least before global energy supply normalises.

“Australia will also have to confront second-round effects from the crisis,” he said. “Industry will need to recover their fuel costs, which will lead to further price rises for food, consumer goods, construction and products and services which rely on transport in coming months.

“Businesses already report negative impacts — Australian Bureau of Statistics figures show two-thirds have changed operations, almost one-sixth have cancelled investment plans, and one in 10 have reduced their workforce. The impacts are greater in highly affected industries like agriculture, manufacturing, construction, transport, accommodation and food.”

For further details, the Research Note can be found here.

Image credit: iStock.com/Suphanat Khumsap